Swiss banks raise emergency funds to fight crisis

BERNE (Reuters) - Switzerland's top two banks took emergency measures to shore up their finances on Thursday, with the state taking a near 10 percent stake in UBS while Credit Suisse raised new funds from private investors.

UBS AG (UBSN.VX) is getting 6 billion Swiss francs ($5.3 billion) from the government in return for a 9.3 percent stake, while Credit Suisse Group AG (CS) (CSGN.VX) said it would raise 10 billion francs from investors including Qatar.

UBS, the biggest Swiss bank, will also unload $60 billion of toxic assets into a new fund controlled by the central bank.

Shares in both banks fell but outperformed most other European banks as investors welcomed the latest example of the measures being taken around the world to prop up banks squeezed by the credit crunch and market turmoil.

"The recapitalization of UBS and Credit Suisse brings a certain stabilization to the Swiss banking system," said ZKB analyst Claude Zehnder. "It definitely sends out a clear signal of security, but on the other hand it shows how serious the situation was, particularly at UBS."

UBS, which has been worse hit than Credit Suisse in the crisis, said its foremost need was to cut exposure to illiquid assets and the creation of the new fund had laid the foundation for a return to its normal operating business.

It said it made a third-quarter net profit of 296 million francs -- helped by its own credit and tax gains -- but withdrawals from wealth and asset management accelerated to 83.7 billion francs -- or 3 percent of total assets under management.

While Credit Suisse saw strong inflows in the quarter, it made a net loss of about 1.3 billion Swiss francs ($1.2 billion) after fresh write-downs of about 2.4 billion on risky assets.

DEPOSITOR PROTECTION

The Swiss government said it did not want to hold the UBS stake for years and would sell it to private investors as soon as possible. In return for the capital, it will make demands on corporate governance and risk controls.

The government said it also planned to boost depositor protection -- from a current 30,000 franc guarantee -- using steps taken elsewhere in Europe as a benchmark. The banking regulator said other banks in the country were generally sound.

"The government has decided to tackle the systemic crisis with these ... measures to restore confidence in the financial center," Switzerland's acting finance minister, Eveline Widmer-Schlumpf, told a news conference.

Keen to support a financial sector which accounts for nearly 15 percent of Swiss output, the government said if refinancing problems emerged it would guarantee banks' new short- and medium-term interbank liabilities and money market transactions.

Credit Suisse welcomed the government action but said it had declined to participate "at this time" given its ability to raise private funds on capital markets and the fact it did not have significant troubled assets.

Credit Suisse raised about 10 billion francs -- or about 12 percent of its outstanding equity -- from investors including the Qatar Investment Authority, already a big shareholder.

Israeli holding company Koor Industries (KOR.TA) had said on Monday it agreed to invest 1.2 billion francs in CS in exchange for a 3 percent stake in the bank. Saudi conglomerate Olayan also took a stake, the bank said.

The injection means Credit Suisse can immediately meet strict new Swiss capital rules set for 2013, while UBS said it will need more time and is still talking to the regulator.

"In contrast to UBS, it did not have to be shored up by the state ... which is a sign of certain strength in the current environment," analysts at ZKB said in a note.

SHARE REBOUND

Shares in both banks reversed earlier gains after U.S. markets fell again. CS bounced just before the close to end 0.87 percent down at 45.50 francs, while UBS fell 4.93 percent to 19.09 francs and the DJ Stoxx European banking sector index .SX7P was down 7.12 percent.

UBS said the steps should help reverse the outflow of client assets, which gained pace in the third quarter.

"We applaud this move as it should relieve fears about further write-downs and eventually stem money outflows in its core wealth management franchise," analyst Pangiotis Spilopoulos at banking group Vontobel said.

UBS said its wealth management business had net outflows of 49.3 billion francs in the third quarter, while its global asset management division had outflows of 34.4 billion francs. [ID:nLG668061]

The troubled UBS investment management business made new write-downs and losses of $4.4 billion in the third quarter.

UBS had already made a total of $42 billion of write-downs on toxic assets due to the credit crisis, more than any other European bank, and is slashing thousands of jobs, but it also raised $30 billion of capital before the turmoil mounted.

Credit Suisse said it had attracted third-quarter net new assets of approximately 14 billion francs, but it made a pretax loss of around 3.2 billion francs from investment banking, citing "exceptionally adverse trading conditions in September."

(Additional reporting by Jason Rhodes, Katie Reid and Lisa Jucca; Writing by Emma Thomasson; Editing by David Holmes, Greg Mahlich)