Swiss score UBS share sale goal

August 20, 2009

After the debacle of UBS’s American tax row, Berne can chalk up a small victory.

That deal effectively blows a hole in the country’s vaunted bank secrecy, whatever the official bluster. However, the government can be proud of being the first European government to sell the equity stake it took to support its banking sector during the crisis.

Moreover, it is set to make a 20 percent-plus return on the deal. UBS was in deep water last October when the Swiss government said that it would invest 6 billion Swiss francs in convertibles, and now things are less fraught, it’s taking its profit. It will collect 1.8 billion Swiss francs, representing the present value of the 12.5 percent coupon that would have been paid before the notes expired in 2011.

The shares rose 3.6 percent in early trading, suggesting that the government will not have to take a big discount on its sale. Even assuming that the 332 million shares it will receive were sold at a 5 percent discount, it will raise 5.5 billion Swiss francs on the sale alone.

Overall, that is a 20 percent-plus turn since it put the money up in December. UBS gains too. It gets the government off the share register and will not be subject to so much political scrutiny as it rebuilds its battered franchise.

The deal will dent the bank’s tier 1 capital ratio by 60 basis points. However, this will almost be offset by a 50 basis point increase thanks to the Brazilian Pactual sale, leaving the bank with a solid ratio of over 13 percent.

Kaspar Villiger, the bank’s new chairman and a former finance minister, knows that Switzerland’s biggest bank still needs to tread carefully to rebuild its reputation, at home as well as abroad. He took care to thank the authorities “for their prudent and resolute course of action from October 2008 to this day.”

Now he just has to win over customers and shareholders.

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The UBS is now on its own after agreeing to hand over names of account holders to the US. Singapore and Switzerland have sold off their stakes. UBS has lost its credibility as well. The Swiss should have confiscated UBS’s data assets. The worst thing that would have happened is that UBS’ US franchise would have suffered but Swizerland would have attracted more private wealth. DOctors Lawyers and Businessman hide their wealth to have a nest egg in case of negligence and divorce lawsuits which could leave them bankrupt.

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