Is UBS the first big bank to get to a clean balance sheet?

Plenty of dust remains to settle, but the Swiss government bailout of UBS today seems likely to have made UBS the first major bank to finally get the point of finally having a clean balance sheet. A MarketWatch article by Steve Goldstein entitled "Markets, analysts mixed on Swiss bank move" offers preliminary details. One remaining key question is the level of capitalization of UBS and their level of strength now that they are at least marginally healthy again. But at a minimum they are now healthy enough to start attracting depositors again.

There was also a hint that UBS may be resolving its client exposures to auction-rate securities as well by offloading them to the Swiss government. According to the article:

The pool of assets that UBS is offloading contains mostly debt backed by U.S. residential and commercial mortgages. UBS also is throwing in other U.S. asset-backed and auction-rate securities, notably those backed by student loans, as well as European and Asian bonds.

UBS is going to sell the securities it doesn't want into a special-purpose vehicle, into which it will inject $6 billion to cover the pool's losses. The Swiss National Bank will then provide a loan of up to $54 billion to pay for the assets.

UBS will be able to claw back the profits from the pool, but it will have to repay the loan and hand over $1 billion and 50% of the remaining equity value to the central bank.

This is another great example of the excellent progress that is being made.

Note: UBS is a non-U.S. bank, but they are in fact one of the Federal Reserve's Primary Dealers for open market operations in Treasury securities and inter-bank lending, so they are rather significant for the U.S. financial system.

-- Jack Krupansky