After insisting for many months that UBS would be allowed to fail if that was what was happening, the Swiss National Bank and the Federal government followed a three week period of silence on the matter with action. Bowing to pressure last week they supported the bank by taking on SFr60 billion of uncertain securities which was announced on Thursday morning of last week. That action stunned the Swiss markets.

The next day the local media were speaking of little else. Clients of all sizes had been deserting UBS in droves. The local cantonal banks were said to have seen huge inflows of deposits and many other institutions have reported an increase in assets under management as a result of larger clients withdrawing money.

Le Temps in Geneva reported that SFr84 billion of client funds were withdrawn from UBS in the third quarter of 2008 alone. The money markets had all but frozen for the bank and UBS was finding it difficult to raise funds to meet short term liabilities. In the end it had to admit defeat and call for government help.

UBS was previously responsible for a third of the Swiss inter-bank market and when combined with Credit Suisse, the two banks are responsible for over 50 per cent of this market. For one of these to fail would have created a systemic melt down for the currency and the economy.

When asked why the government had not acted sooner Jean-Pierre Roth, president of the Swiss National Bank responded that: “We had said that we would do that which was necessary in case of major difficulties. We have done that.” As for any follow on action, Mr Roth stated that there are “no other [Swiss] banks in difficulty”. Interbank rates eased on Thursday and Friday and the rescue package seems to have been met with general approval according to local media.

In a related story, the Commission Federal des Banques (CFB) has issued a report on UBS’s involvement with the sub-prime market which is confidential, although a summary has been made available.

The CFB states that it is “irritated” by the sizes of the bonuses paid to those at the helm of the investment banking arm that was responsible for the huge exposure that UBS had in the sub-prime market. Peter Wuffli resigned in July 2007 and the boss of the Investment Bank Hew Jenkins and Clive Standish, chief financial officer went three months later in October.

The three of them took home some $93 million in salaries, bonuses and various other fees. There is no suggestion that these payments were not in line with contractual obligations and the CFB does not censure the individuals in any way, but the report suggests that any such payments other than that required by law and contract should be avoided.

Is this all the beginning of the end for UBS’s woes? Time will tell, but the Swiss National Bank certainly hopes that their actions will “restore the confidence of clients and shareholders.” UBS’s share price fell 4.8 per cent on Friday against a Swiss market rise of 6.6 per cent and reports suggest that clients are continuing to defect to cantonal banks and other local institutions even after the announcement.