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SNB buys first tranche of assets from UBS

The Swiss National Bank said it had acquired a first tranche of assets from UBS under a deal to remove toxic assets worth $60 billion from the Swiss bank's balance sheet.

UBS had transferred securities positions worth $16.4 billion at the end of September to SNB StabFund, a special-purpose vehicle created by the SNB, the central bank said in a statement.

The difference between the purchase price of the assets and their value on UBS' books as of September 30 was not significant, said the SNB, which has declined to comment on any change in the portfolio's value since then.

The assets were mainly US and European residential and commercial mortgage-backed securities.

UBS, Switzerland's largest bank, has been forced to write down about $49 billion on risky subprime assets and has seen billions flow out of its accounts over the course of this year.

The SNB and the Swiss government unveiled the bailout plan for UBS in mid-October. Under the plan, UBS is also getting a 6-billion-Swiss-franc shot in the arm from the Swiss government.

The SNB will acquire up to $60 billion worth of toxic assets by the end of March 2009, which will be liquidated over time. In the case of a profit, the SNB will get $1 billion upfront plus 50% of gains beyond that.

Swiss media has speculated about potential losses the SNB might have run up already as market conditions have deteriorated sharply since the plan was announced.

But the central bank has said it would make no interim statements on the portfolio's value as its was pursuing a “buy-and-hold-to-maturity” strategy with the fund.

“The volatile price movements and severe illiquidity of the markets go to show just how important it was to have unburdened UBS of these risks when we did,” SNB board member Thomas Jordan said at the SNB's year-end media conference last week. (Reuters)