Switzerland's UBS bank said it would repay a loan and buy back equity in a fund, which was set up as part of its 2008 bailout, after the bank recorded a surge in second-quarter profit.
The bank said it expects to exercise the option to acquire the SNB StabFund's equity in the fourth quarter of 2013.
The transaction will bolster the health of the bank's balance sheet as its core Tier I capital ratio, under Basel III capital requirements, will be boosted by an additional 70-90 basis points in the fourth quarter.
During the second quarter, the ratio increased by 1.1% to 11.2%, as the bank cut 20bn swiss francs ($22bn, £14bn, €16bn) of risk-weighted assets, surpassing its target for the end of the year.
In 2008, the bank faced a collapse due to more than $50bn in losses on mortgage securities.
Under the rescue plan for the bank, the Swiss government took a 9% stake in the bank for 6bn swiss francs, which it sold at a 1.2bn swiss francs profit, less than a year later.
Finding them difficult to handle, the bank offloaded about $38.7bn of toxic assets to a fund managed by the Swiss National Bank. The central bank has been selling the assets since then. The fund earned 938.7m francs last year for the central bank.
Strong Quarterly Results
The biggest bank in Switzerland reported a 32% rise in second-quarter net profit attributable to shareholders to 690m swiss francs from 524m swiss francs in the year-ago period.
The result was despite pre-tax charges for the quarter totalling about 865m francs for litigation matters and other provisions and an impairment of financial assets, according to the bank.
Earnings at the wealth management division rose 11% to 557m francs, the highest in four years, on robust business growth in the US. The business attracted net new money of over 36bn francs year-to-date, up over 50% on the first half of 2012.
UK Tax Charge
UBS booked a 104m swiss franc charge in wealth management because of the Swiss-UK tax agreement, which requires banks to collect taxes on accounts of UK citizens.
The Swiss Bankers Association said earlier that Swiss banks face losses of about 500m francs on payments made to the UK government as part of the deal related to untaxed assets in Switzerland.
Despite the strong revenue growth and business flow in the first half, UBS expects that client confidence and activity levels in the third quarter could be impacted by adverse global economic conditions.
"The continued absence of sustained and credible improvements to unresolved European sovereign debt and banking system issues and US fiscal issues, and the mixed outlook for global growth" would affect the business negatively, according to the bank.
The adverse conditions along with the decline in activity during the summer holiday season would generate headwinds for revenue growth, net interest margins and net new money, the bank said.
Nevertheless, the bank was confident about its wealth management business' ability to attract net new money.