Switzerland buys UBS stake in bid to save its banks

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The move will see it pick up a 9.3% stake in UBS, the country's largest bank, and take on $60 billion (£35 billion) of the bank's toxic assets. UBS said it took another $4.4 billion of losses and writedowns in its third quarter, taking its total since the credit crunch began to $40.1 billion.

Credit Suisse, the country's second-largest investment bank, welcomed the government's moves but, like Barclays in the UK, said it would raise new funds elsewhere - mainly from sovereign wealth investors.

The Swiss Finance Ministry is taking other measures to strengthen the financial system, including immediate legislation to increase depositors' protection. UBS will raise Swfr6 billion (£3.04 billion) by issuing mandatory convertible notes to the government. These will pay interest at 12.5%, and must be converted into UBS shares within 30 months.

The bank is also transferring $60 billion of its of its most illiquid assets and other at-risk investments into a separate vehicle to be controlled by the Swiss National Bank. This will include the bank's US subprime, Alt-A, prime, commercial real estate and mortgage-backed securities and student loans with a current value of $30 billion. UBS said that would cut its net exposure to those risk categories to "nearly zero."

The state-owned fund will also include $18 billion of non-US assets. UBS will provide Swfr6 billion of equity to set up the fund while the other Swfr54 billion will be financed by a central bank loan on which UBS will pay interest at Libor plus 2.5%.

Peter Kurer, the little-known lawyer who was drafted in to chair UBS in April after the departure of Marcel Ospel, said: "In these turbulent times, we want to ensure that we do everything possible to safeguard the solidity of our bank. We are taking steps to eliminate legacy risks."

UBS has cut 6000 jobs worldwide since 2007, including several hundred at its London investment banking headquarters.

The bank said it made a profit of Swfr296 million in the third quarter as it cut costs through job cuts and lower bonuses. It posted a loss of Swfr870 million in the third quarter of 2007.