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Announcement by Swiss Confederation regarding conversion of UBS mandatory convertible notes and placement of shares

Zurich/Basel Price Sensitive Information


The Swiss Confederation (the "Confederation") has announced its intention to exercise its right to convert all CHF 6 billion of its holding of UBS Mandatory Convertible Notes due 2011 ("MCNs") and to place with institutional investors the newly issued UBS shares received upon conversion.

Upon conversion of the MCNs, UBS will issue 332,225,913 new shares with a nominal value of CHF 0.10 each from existing conditional capital. As a result, the share capital of UBS will increase from currently CHF 322,583,859.90 to CHF 355,806,451.20. Conversion and the capital increase are expected to take place on 25 August 2009.

Further, in connection with the conversion of the MCNs, the Confederation will waive its right to receive future coupons on the converted MCNs for a cash amount of approximately CHF 1.8 billion, (the "Coupon Consideration"), representing the present value of the future coupon payments. The Coupon Consideration is expected to be paid on 25 August 2009. UBS considers the Federal Council's decision an acknowledgement of the measures the bank has taken so far to restore its health. Chairman Kaspar Villiger said: "The Board of Directors and the executive management of UBS would like to thank the Swiss Confederation, the Swiss National Bank and FINMA for their prudent and resolute course of action from October 2008 to this day."

Financial and Accounting Effect on UBS
Upon conversion, the liability relating to the principal value of the MCNs and the negative replacement value relating to the embedded options of the MCNs will be transferred to equity, increasing the book value of UBS's capital by a corresponding amount. Conversion will have no impact on UBS's regulatory capital.

The Coupon Consideration does not differ materially in amount from the book value of the relevant liability held in UBS's balance sheet as at 30 June 2009. The Coupon Consideration will, therefore, have no material impact on UBS's profit and loss account for the third quarter of 2009. However, the Coupon Consideration will reduce UBS's Tier 1 ratio by approximately 60 basis points based on risk-weighted assets as at 30 June 2009. As at 30 June 2009, UBS had accrued charges of approximately CHF 400 million to its regulatory capital account in respect of the coupon liability. The balance of unaccrued liability of approximately CHF 1.4 billion will therefore be charged to regulatory capital.

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