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S&P: Switzerland 'AAA/A-1 ' Sovereign Ratings Affirmed On Strong Policy Framework; Outlook Stable
FRANKFURT (Standard & Poor's) Jan. 13, 2009--Standard & Poor's Ratings Services said today it affirmed its 'AAA' long-term and 'A-1 ' short-term sovereign ratings on the Swiss Confederation (Switzerland). The outlook is stable. "Our ratings affirmation reflects that although parts of the Swiss banking system are experiencing financial stress, the country's very large external creditor position and strong monetary and fiscal frameworks will, in our opinion, be able to absorb the anticipated economic and fiscal fallout from the financial crisis without undermining Switzerland's extremely strong creditworthiness," said Standard & Poor's credit analyst Moritz Kraemer. The ratings on Switzerland reflect our opinion of Switzerland's long-standing political stability; high per capita income, generated by a diversified and open economy; robust public finances; and very strong net external creditor position. Inclusive coalition governments and a rotating presidency have, in our view, created a political environment in Switzerland, characterized by a stable, consensus-based system with a long track record of policy continuity. At the same time, it is our view that the inclusive political system tends to slow down decision-making and promotes a status-quo bias. Nevertheless, following the onset of the current financial crisis, which has also severely affected the two main Swiss banks, the government's policy reaction has, in our opinion, been swift and circumspect. Switzerland's economy benefits from a highly skilled labor force, low inflation, and low unemployment. The country continues to generate one of the highest GDPs per capita in the world, expected to surpass $55,000 in 2009. As the impact of the international financial crisis intensified, the Swiss authorities had to provide material support to UBS AG (A /Stable/A-1) to offset the bank's huge losses on U.S. mortgage assets and other illiquid securities. A fund controlled and financed by the Swiss National Bank (SNB), Switzerland's central bank, is currently buying up to Swiss franc (CHF) 60 billion (11% of GDP) of UBS' troubled assets. We believe it likely that this fund will not incur sizable losses from the assumption of these assets. Therefore, the government would not incur any significant direct fiscal costs. UBS has also sold CHF6 billion (1% of GDP) in mandatory convertible notes to the Swiss government, which, once converted in 2011, would give the latter a stake in the bank of about 9%. We are of the opinion that Swiss banks currently enjoy relatively strong capital ratios by international standards, but additional recapitalization costs may still become necessary during 2009. "The outlook is stable because we believe that no scenario will materialize where the government would have to directly and substantially recapitalize the country's banks," said Mr. Kraemer.