UBS will repay a loan and buy back equity in a fund set up as part of its 2008 bailout, a move the Swiss bank said on Tuesday would bolster its capital later this year.
The move draws a line under the Swiss government's rescue of UBS nearly five years after the bank threatened to collapse under the weight of more than $50 billion in losses on mortgage securities.
"The results show that our strategy is right and we're ahead on execution," UBS Chief Executive Sergio Ermotti said in a statement.
UBS's shares hit a two-year high last week after the bank disclosed a quarterly profit that beat analyst views, even after paying $885 million to settle a lawsuit with the US housing regulator over the mis-selling of mortgage-backed bonds.
In its outlook on Tuesday, UBS said third-quarter revenue and net new money -- a closely-watched bellwether of future business -- may be hit as clients fret about the euro zone, US debt trouble, as well as the mixed global economic outlook.
"Nevertheless, we remain confident that our wealth management businesses will continue to attract new money," UBS said in a statement.
The flagship private bank took in 10.1 billion francs of fresh money this quarter.
Profit at UBS investment bank rose amid buoyant markets for equities -- a traditional strength.
UBS will buy the bailout fund back from Switzerland's central bank later this year. It can purchase it for $1 billion plus 50 per cent of its gains.
The move will add up to 90 basis points to UBS's capital ratios, by taking on the cash and securities remaining after the loan is repaid.
Analysts, including Morgan Stanley and Espirito Santo, had said previously that UBS could use a such a buyback to fuel dividends.
On Tuesday, UBS didn't comment on the effect the repurchase will have on its shareholder payout policy.
The government took a nine per cent stake in UBS as part of the bailout, which saw UBS receive a 6-billion-Swiss-franc shot in the arm. Switzerland sold the stake less than a year later at a 1.2 billion franc profit.
However, roughly $38.7 billion in toxic former UBS assets were tricker to handle. Offloaded to a fund managed by the Swiss National Bank as part of the bailout, the central bank has been selling them down since.
The outstanding loan for the fund, which added 316 million Swiss francs to the central bank's first-half results, was lowered dramatically in the period to 1.2 billion, the SNB said in a statement.