Thursday, August 20, 2009

Switzerland to Sell $5.6 Billion UBS Stake After U.S. Accord

By Josh Fineman and Elena Logutenkova

Aug. 20 (Bloomberg) -- The Swiss government said it plans to sell its 6 billion-franc investment in UBS AG, the country’s biggest bank, by today after signing an agreement with the U.S. yesterday over data on bank clients suspected of evading taxes.

The government gave a mandate to three Swiss and foreign banks to sell 332.2 million UBS shares, securing a certain minimum price, Peter Siegenthaler, director of the federal finance administration, said in a telephone interview. He declined to identify the banks or the minimum price, saying the state expects to make a “significant profit.”

The Swiss Confederation will waive its right to receive future coupons on the mandatory convertible notes for a cash amount of approximately 1.8 billion Swiss francs, representing the present value of the future coupon payments, UBS said.

The Swiss government last year invested 6 billion Swiss francs ($5.6 billion) in mandatory convertible notes to help Zurich-based UBS split off toxic assets amid the worst economic crisis since the Great Depression. Yesterday’s settlement of a U.S. lawsuit that sought data on as many as 52,000 UBS clients and the bank’s 3.8 billion-franc capital increase in June strengthened confidence in the bank, the government said.

Swiss and U.S. authorities said earlier yesterday that UBS will divulge information on 4,450 accounts to settle a U.S. lawsuit that sought names of American clients suspected of evading taxes. The bank, which won’t pay any fine under the agreement, will transfer the data to the Swiss government, which will then decide what information gets passed on.

Note Conversion

“At the moment, it wouldn’t be a bad deal” to sell the UBS investment, Swiss Finance Minister Hans-Rudolf Merz said at a press conference in Bern.

The government intends to convert the mandatory convertible notes on Aug. 25, when UBS will also make the cash payment in lieu of future coupons, the bank said in a separate statement.

The government intends to sell UBS shares to institutional investors.

UBS’s share capital will increase to 355.8 million from 322.6 million, UBS said in the statement. The transaction will have no material effect on the bank’s third-quarter earnings, though it will reduce its Tier 1 capital ratio by 60 basis points, it said. A basis point is 0.01 of a percentage point.

UBS, the world’s second-biggest manager of money for the rich, admitted in February to participating “in a scheme to defraud the U.S.” and agreed to pay $780 million and disclose the names of more than 250 clients who allegedly hid assets from the IRS. A day later, the IRS sued the bank for information on as many as 52,000 clients.

Shares Rise

UBS shares have risen 11 percent since the U.S. and Switzerland said they had reached an agreement in principle on the tax lawsuit on July 31. UBS fell 16 centimes, or 1 percent, to 16.74 francs in Swiss trading yesterday.

UBS Chief Executive Officer Oswald Gruebel and Chairman Kaspar Villiger have said they aim to wean the bank off government support as quickly as possible. Gruebel has cut 7,500 jobs, sold a Brazilian unit, replaced three executive board members and tapped investors for more capital since joining UBS in February to help restore the bank’s profitability and reputation.

The bank’s Tier 1 capital ratio, a gauge of its ability to absorb losses, rose to 13.2 percent at the end of the second quarter from 10.5 percent at the end of March after the bank cut assets on the balance sheet by 261 billion francs and sold new shares in June.

To contact the reporters on this story: Josh Fineman in New York at; Elena Logutenkova in Zurich at