New Swiss Fund to Help UBS

As part of a larger financial markets rescue package by the Swiss government, the Swiss National Bank and UBS have come to an agreement designed to "materially de-risk and reduce" UBS's balance sheet by transferring up to $60 billion of the latter's partially mortgage-related problem assets into a newly created fund. UBS said problem assets transferred into the fund include U.S. securities that were valued at about $31 billion as of Sept. 30 in the following categories: subprime, alt-A, prime, commercial real estate and mortgage-backed securities, student loan auction rate certificates and other securities backed by student loans, as well as a reference-linked note program. At completion of the transaction, UBS's net exposure in these risk categories will be reduced to nearly zero (compared to $44.2 billion on June 30), with residual long positions held by UBS in these asset classes hedged through existing short positions, including credit protection embedded in the RLN programs, UBS said.