The encyclopedia · Finance & Accounting · Financial decision · 2008–2013
SNB parked UBS's toxic assets in StabFund and later sold them back at a profit
The SNB took UBS's illiquid assets into a loan-financed fund; UBS bought it back in 2013 and the central bank earned $1.6bn in interest.
Swiss National Bank
the move
By late 2008 UBS had taken roughly $50bn of write-downs on US subprime-related securities and markets were freezing. On 16 October 2008 the Swiss National Bank announced a stabilisation package built around a special purpose vehicle, the SNB StabFund.
StabFund was designed to buy up to $60bn of UBS's illiquid assets. UBS supplied 10% of the value of each transfer as equity — the first-loss slice — while the SNB provided the remaining 90% as a loan, so losses would hit the bank's own capital before central-bank money.
Between December 2008 and April 2009 UBS transferred $38.7bn of assets in three tranches. The fund was wound down jointly by the SNB and UBS, and the Swiss government's parallel CHF6bn of mandatory convertible notes were sold in August 2009.
In November 2013, after the SNB loan had been fully repaid, UBS paid $3.8bn to buy StabFund's entire equity. The SNB also collected $1.6bn of interest over the life of the loan — a rescue that returned a profit.
why it works
- UBS's 10% equity tranche absorbed first losses before the central bank.
- The loan was priced, so the SNB was compensated for the liquidity it provided.
- Holding the assets in the fund avoided a fire-sale of mortgage securities.
- The structure stabilised UBS without nationalising it or writing a blank cheque.
what transfers
When rescuing a bank, make it keep the first-loss tranche and pay for the facility: the public backstop gains a private equity cushion, and the bank manages the assets carefully.
what came after
StabFund was wound down after UBS repurchased it for $3.8bn in November 2013, and the SNB recorded $1.6bn of interest income. The structure became a reference point for crisis facilities that share risk between a central bank and the rescued bank's own capital.
references
spotted an error? The archive wants to know.