Switzerland Selling Its Stake in UBS

Switzerland Selling Its Stake in UBS
By MATTHEW SALTMARSH
Copyright by The New York Times
Published: August 20, 2009
http://www.nytimes.com/2009/08/21/business/global/21iht-ubs.html?adxnnl=1&ref=global-home&adxnnlx=1250787731-oM05sXPXSOWTKJHbrdFV9g


PARIS — Switzerland’s government said Thursday that it was in the process of selling its stake in the giant bank U.B.S., a transaction that it expects will generate about one billion Swiss francs, or $938 million, in profit for taxpayers.

Officials confirmed details of the sale following a deal announced Wednesday to turn over information on American clients of U.B.S., who are suspected by the U.S. Internal Revenue Service of using Swiss bank accounts to evade taxes.

In October, the Swiss government had injected 6 billion francs, or $5.6 billion, into the troubled lender in exchange for mandatory convertible notes that would have given it an 8.5 percent stake in the bank if converted.

The government said on several occasions since then that it wanted to sell its stake as soon as justifiable, but that U.B.S. had to be on solid ground first.

The government and regulators now judge that to be the case in the wake of the deal with Washington and after a capital increase completed June 30 lifted the bank’s Tier 1 capital ratio, a measure of financial strength, to 13.2 percent from 10.5 percent at the end of March.

Peter Siegenthaler, director of the Swiss federal finance administration, said in an interview by telephone that the sale — a placement to institutional investors — should yield a significant profit for the state.

“It depends on the final price, but if everything goes well, it could be a bit above 1 billion Swiss francs,” he said.

The bank’s second-quarter earnings “showed operationally that the bank is performing better,” Mr. Siegenthaler said, adding the view was shared by the Swiss National Bank and FINMA, the banking commission.

The government is selling 332.2 million U.B.S. shares at 16 francs to 16.50 francs each. The bank’s stock closed at 16.74 francs Wednesday in Zurich and were quoted at 17.34 francs in midday trading Thursday, up 3.6 percent.

“The exit is a positive signal, as it shows the confidence of the Swiss government regarding the situation of U.B.S.,” Stefan Schürmann, an analyst at Vontobel, said in a research note. “The placement increases U.B.S.’s flexibility in rebuilding its franchise and will help to keep or hire key employees.”

He said he expected a positive share price reaction and that the “related dilution is already reflected in the share price.”

The sale is being managed by U.B.S., Credit Suisse and Morgan Stanley, the government said.

Credit Suisse has also had losses related to the financial crisis, but it has avoided a government bailout and arranged a recapitalization through other sources.

In selling the U.B.S. holding, the government will waive its right to receive future coupons on the mandatory convertible notes. In exchange, it will receive approximately 1.8 billion francs in cash, representing the present value of the future coupon payments, U.B.S. and the Finance Ministry said.

The government intends to formally convert the mandatory convertible notes on Tuesday, when U.B.S. will make the cash payment in lieu of future coupons, the bank said.

U.B.S. added the government sale would “have no material impact” on its earnings for the third quarter. The transaction will increase its share capital to 355.8 million francs from 322.6 million francs. However, the coupon payment will reduce U.B.S.’s regulatory capital base by approximately 1.4 billion francs.

The resolution of the tax case was the final hurdle that the Swiss government wanted to clear before unloading its U.B.S. holding. Swiss and U.S. authorities said Thursday that U.B.S. would divulge information on 4,450 accounts to settle a lawsuit that sought names of American clients suspected of evading taxes.

The accounts concerned held over $18 billion at one point, according to the I.R.S. commissioner, Douglas Shulman, who called the deal “a major step forward in piercing the veil of bank secrecy.”

U.B.S. will give the names to the Swiss tax authority, which will forward them to the I.R.S. Under a new tax treaty with Switzerland, it could take more than a year for most of the names to be disclosed.

In coming weeks the bank will start to notify clients, who can appeal the disclosure in Swiss courts. The bank will not pay a fine under the deal.