UBS and Credit Suisse have chosen very different ways of reassuring investors over the risks on their balance sheets.
The former has fully embraced government support to transfer risky assets to a separate vehicle that UBS will itself capitalise with SFr6bn ($5.3bn) equity raised from the state. Credit Suisse has not moved to offload risky assets in bulk, but has instead opted for a SFr10bn capital increase funded by private investors.
What both solutions have in common is speed of execution.
The UBS deal over its toxic assets is an attempt decisively to take risk from the Swiss bank’s balance sheet. It has been made possible by the relative simplicity involved in the transfer value of the assets, which is taking place at their carrying value in UBS’s accounts at September 30, subject to independent valuation.
This contrasts with the continuing uncertainty surrounding the precise manner in which the US trouble asset relief programme will work, with complexities surrounding the value at which the fund will buy assets from banks, as well as the indemnities that selling banks will provide the taxpayer against future losses.
The government’s support means the Government of Singapore Investment Corporation (GIC) will see its interest of about 9 per cent in UBS slightly diluted.
GIC said it was willing to explore “all investment opportunities that are made available” if it is offered more UBS shares or convertible notes.
Meanwhile, Credit Suisse’s ability to raise such a large amount of private capital at a time when market confidence is arguably at a historical low depended on the support of three strategic investors, including the Qatar Investment Authority.
The sale of a combination of hybrid capital and mandatory convertible securities delivers certain funds for Credit Suisse but it comes at the cost of excluding other shareholders who might have wanted to participate in a more democratic equity placing.
Qatar’s sovereign wealth fund now becomes Credit Suisse’s largest shareholder.
“This is a long-term strategic investment at an attractive value,” said one person close to the Qatar Investment Authority’s thinking, without elaborating on the details of the transaction.
Qatar’s is the first high profile-move from a Gulf sovereign wealth fund since the credit crunch turned into a full-blown financial crisis. It could indicate that these powerful funds believe the crisis to be bottoming out and may be preparing to invest more of their excess hydrocarbon wealth.
Over the past year, the QIA invested in Credit Suisse and Barclays, Kuwait invested in Citi and Merrill Lynch and Abu Dhabi took a large stake in Citi.
Given the subsequent declines in share price, some analysts have questioned whether Gulf sovereign funds would be so quick to shore up western financial institutions again.
The QIA, which controls assets of about $60bn to $80bn, aims to spend up to $15bn on acquiring stakes in international banks over the next two years, according to Sheikh Hamad bin Jassim Al Thani, Qatar’s prime minister who controls the QIA.
Additional reporting by Simeon Kerr in Dubai and John Burton in Singapore
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