Swiss banking giants UBS AG and Credit Suisse today announced large moves to raise added capital.

UBS said that it will raise CHF6 billion of new capital through mandatory convertible notes (MCN), fully placed with Swiss Confederation. The MCN issue is subject to approval by UBS shareholders who will vote on the creation of the required conditional capital underlying the MCN at an extraordinary general meeting to be held in late November. The MCN will count as Tier 1 capital and it will pay a coupon of 12.5% until conversion into UBS registered shares, which must take place no later than 30 months after issuance.

At the same time, the Swiss National Bank (SNB) and UBS have reached an agreement to transfer up to US$60 billion of currently illiquid securities and other assets from UBS’s balance sheet to a separate fund. The fund will be capitalized with up to US$6 billion of equity capital provided by UBS and a non-recourse loan of up to US$54 billion provided by the SNB.

The fund holding the firm’s troubled assets will be controlled by the SNB, and UBS will sell its equity interests to SNB for US$1 and will have an option to repurchase the equity once the loan is fully repaid for a purchase price of US$1 billion plus half of the equity value exceeding US$1 billion.

The firm says that this transaction caps future potential losses from these assets, secures their long-term funding, reduces its risk-weighted assets, and materially de-risks and reduces its balance sheet.

Marcel Rohner, UBS CEO said, “This transaction gives comfort in UBS’s future. The extremely difficult market environment led us to accelerate our risk reduction with a definitive move. Our aim is to protect our clients from the impact of the crisis to the fullest extent possible and to provide our shareholders an opportunity to renew their confidence in the bank. Our shareholders have borne the losses from this crisis. They now have the certainty that our risks related to these distressed assets have been substantially removed while still participating in the recovery of these assets”.

UBS also reported that it recorded a small net profit attributable to its shareholders of CHF 296 million for third quarter 2008.

At the same time, Credit Suisse announced that it has reached an agreement with the Swiss Federal Banking Commission on capital targets and leverage requirements, and that it has raised CHF10 billion of tier 1 capital from a small group of major global investors, led by the Qatar Investment Authority, by issuing new shares through mandatory convertible bonds and non-dilutive hybrid tier 1 capital.

The firm also said that it has ended its current share buyback program. Brady Dougan, Credit Suisse’s CEO, said, “We are very pleased to have reached a solution that further strengthens our capital base and ensures our competitive position. Credit Suisse is very strongly capitalized and these measures mean that we immediately exceed the revised regulatory requirement for 2013. This positions us ideally to take advantage of opportunities for further growth in our targeted businesses. I am delighted that our close relationships with a number of strategic investors, who have confidence in our clear strategy and solid business model, have enabled us to raise the necessary capital.”

In addition, the firm said it expects to report a CHF 1.3 billion loss for the current quarter, led by a CHF 3.2 billion loss in investment banking, reflecting writedowns of approximately CHF 2.4 billion in the leveraged finance and structured products businesses as well as exceptionally adverse trading conditions in September.

Dougan said, “Our investment bank was impacted by the volatile conditions and the result reflects further writedowns in our leveraged finance and structured products businesses and other losses resulting from the exceptionally adverse trading conditions in September. We expect to announce an overall net loss of approximately CHF 1.3 billion for Credit Suisse in the third quarter. While understandable in the context of a difficult market environment, this result is clearly disappointing.”

“We remain firmly committed to our strategy. We will continue to invest in our Private Banking business and aggressively transform our Investment Banking business, reducing our overall risk and diversifying our revenue streams. We will also manage our business in a disciplined, conservative manner, with a view to maintaining our exceptional capital strength and capitalizing on growth opportunities.”