Swiss banks raise emergency funds to fight crisis

By Sam Cage and Sven Egenter

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.