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UBS Ends Credit Suisse Loss Protection Agreement and Liquidity Backstop

News about UBS ends Credit Suisse loss protection agreement is a trending topic on United States Friday, August 11, 2023.

UBS ended an agreement with the Swiss government to cover potential losses related to the acquisition of Credit Suisse. The agreement, which UBS ended voluntarily, included a loss protection agreement and a public liquidity backstop that was backed by the Swiss government. Credit Suisse paid risk premiums for the loan protection agreement and fully repaid all loans under the public liquidity backstop by the end of May 2023.

The loss protection agreement, worth 9 billion Swiss francs ($10.27 billion), was part of the deal in which UBS acquired Credit Suisse in March. Ending the agreement will save UBS maintenance fees, but it also means that Credit Suisse will lose its government and central bank protections.

According to UBS, the decision to end the agreement came after a comprehensive review of the funding situation. Credit Suisse will now have to rely on its own resources to cover any potential losses following the termination of the agreement. UBS's decision is perceived as a sign of confidence in its capability to manage the risks related to the acquisition of Credit Suisse.

The termination of the loss protection agreement and liquidity measures by the Swiss government will not influence Credit Suisse's ability to comply with its regulatory obligations. Nevertheless, it is unclear how the market will respond to this event or if it will impact Credit Suisse's share price.

To summarize, UBS chose to terminate the loss protection and public liquidity safety nets that were a part of the acquisition deal between UBS and Credit Suisse in March. These safety nets were guaranteed by the Swiss government. As a result of this move, Credit Suisse will lose the government and central bank safeguards and will have to depend on its own resources to cover any foreseeable losses.