Swiss government injects six billion francs into UBS (AFP)

ZURICH (AFP) - The Swiss government injected six billion francs into banking giant UBS on Thursday, and the central bank lent it 54 billion dollars to transfer its non-liquid assets into a separate fund.

The announcement came as new data showed a huge outflow of funds from the stricken bank.

The fresh capital, equivalent to 3.9 billion euros or 5.2 billion dollars, would give the Swiss government a 9.3-percent stake in the bank, one of the worst-hit by the global financial crisis.

Eugen Haltiner, president of Federal Banking Commission, told journalists that the step was necessary because "trust in UBS has seriously suffered" owing to the subprime crisis and general financial turmoil.

In an indication of how much of a pounding the bank's once-solid reputation has taken, customers withdrew nearly 84 billion Swiss francs worth of assets from UBS during the third quarter, it said in a statement.

UBS's wealth management and business banking division saw clients withdraw a net 49.3 billion Swiss francs, "with a significant part of the outflow taking place in the last few weeks of the quarter," it said.

The Global Asset Management division saw net new money outflow of 34.4 billion Swiss francs, it added.

UBS said it had also reached an agreement with the Swiss central bank to transfer up to 60 billion dollars of non-liquid assets into a separate fund.

Under the agreement, the Swiss National Bank would lend UBS 54 billion dollars for this separate fund, with the remaining six billion dollars to come from UBS itself.

When the loan is fully repaid, UBS can buy the fund back from the central bank.

"This transaction gives comfort in UBS's future. The extremely difficult market environment led us to accelerate our risk reduction with a definitive move," group CEO Marcel Rohner said.

SNB chief Jean-Pierre Roth insisted that the package came with strings attached, and that UBS was not getting off scot-free.

"We're not giving a present to UBS," he told journalists.

Any profits that might be made from the sale of its non-liquid assets would see the first 1 billion Swiss francs go to the SNB, and the rest split fifty-fifty between the central bank and UBS, he said.

UBS had been forced to write down over 42.5 billion dollars worth of assets as well as report consecutive quarters of losses due to the subprime crisis.