With immediate effect, UBS is terminating the federal loan loss guarantees made to it by the government when it forced the bank to take over Credit Suisse on March 19. The decision renders the guarantees obsolete.

UBS announced today that it «definitively terminated» 9 billion Swiss francs ($10.3 billion) in a federal Loss Protection Agreement (LPA), along with an agreement with the Swiss National Bank (SNB) for liquidity assistance loans of up to 100 billion francs on a voluntary basis, according to a statement from the Federal Department of Finance on Friday.

The announcement is not completely unexpected. According to a «Financial Times» (behind paywall) story in early July, UBS was aiming to make it clear it wouldn't tap into the rescue funds. A source told the «FT» that such a decision would be made on the business case rather than political considerations.

UBS said that «After reviewing all assets covered by the LPA since the closing in June and taking the appropriate fair value adjustments, UBS has concluded that the LPA is no longer required. Therefore, UBS has given notice of voluntary termination,» effective August 11, according to a statement from UBS.

No Taxpayer Burden

The guarantees were created under an emergency law enacted to help preserve financial stability when the Federal Council, SNB, and Finma ordered UBS to take over Credit Suisse.

With the termination of the agreements, the measures will «cease to exist, and the Confederation and taxpayers will no longer bear any risks arising from these guarantees. Furthermore, the Confederation earned receipts of around 200 million francs on the guarantees,» according to the statement. 

Credit Suisse Repays Assistance

Furthermore, Credit Suisse also paid back the ELA+ loan of 50 billion francs to SNB as of August 10, and a risk premium totaling 476 million francs to the SNB, according to the UBS statement.

No Losses for the Government

The federal government incurred no losses related to the guarantees. With their termination, any associated financial risks ceased to apply to the government and taxpayers. 

The Federal Council still intends to submit a bill to Parliament to introduce a public liquidity backstop (PLB) under ordinary law. In parallel, work is also continuing on the comprehensive review of the too-big-to-fail regulatory framework, to further promote financial stability.