Blast from the past

16 August 2010 By Nicholas Paisner

Switzerland’s central bank is benefiting from a recovery in toxic assets it bought from UBS. The Swiss lender has an option to buy them back. A deal would symbolise the end of the UBS bailout, but would also burden its balance sheet. It shouldn’t do a deal for the sake of it.

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The Swiss National Bank said on Aug. 13 that the value of the assets in its stabilisation fund was $19 billion at the end of June. The central bank made a profit of $1.9 billion from the fund in the first half of 2010.

UBS said on July 27 that the value of its option to repurchase assets sold to the "Stabfund" had risen to 1.6 billion Swiss francs at the end of the first half, from 1.2 billion Swiss francs at the end of 2009.

The fund was established in October 2008 to relieve UBS of toxic assets that threatened to drag down the bank. UBS has an option entitling it to 50 percent of the value of the fund's equity above $1 billion, once a loan from the SNB has been repaid.

At UBS's annual general meeting on April 14, Chief Executive Oswald Gruebel told investors that the bank had "made an offer to...buy back the investments" in the stabilisation fund. He added that the SNB had "declined this offer, though we remain ready to initiate discussions about a repurchase."

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