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Reuters
3 days ago
- Business
- Reuters
Switzerland poised to pitch tough new capital rules for UBS
ZURICH, June 3 (Reuters) - The Swiss government is this week widely expected to propose tough new capital rules for UBS (UBSG.S), opens new tab following the 2023 collapse of its rival Credit Suisse, ushering in a long battle in parliament over the closely watched regulations. UBS acquired Credit Suisse at a knock-down price in March 2023, and shock over the demise of Switzerland's second-biggest bank after a string of scandals sparked a chorus of calls to toughen regulations so there could be no repeat meltdown. Central to these so-called "too big to fail" plans sketched out by the government last year is the degree to which UBS should capitalise its foreign subsidiaries to mitigate risk. That question should be answered on Friday when the government presents its proposals. Analysts, lawmakers and the bank itself expect the rules will demand UBS fully capitalise the units - despite the bank's opposition. "The market would be surprised if the federal cabinet did not demand 100% capitalisation of foreign units," said Vontobel analyst Andreas Venditti, pointing to comments by regulators and how UBS shares are undervalued vis-a-vis competitors. According to the bank's own calculations, full capitalisation of the foreign subsidiaries would require UBS finding upwards of $20 billion in additional capital. UBS argues that such a burden would put the Zurich-based lender at a disadvantage against rivals and undermine Switzerland's competitiveness as a global financial centre. "The winners will be our competitors outside Switzerland," UBS CEO Sergio Ermotti told an event near Lucerne last month. "Those guys are just waiting for the nonsense to happen." But the Swiss National Bank and financial market regulator FINMA, both of which drew fire for their response to the Credit Suisse meltdown, have backed full capitalisation of the units. UBS has floated concessions to avert such an outcome and has examined a host of scenarios, including moving its headquarters abroad. However, executives say it is not planning that. Many of the lawmakers, UBS sources and analysts Reuters spoke to for this story believe the regulations will likely be diluted during the legislative process. Final legislation for the new rules is expected in 2027 at the earliest. The new Swiss regulations could trigger a realignment of UBS's business model, which is currently geared around growth in the United States and Asia, investors say. "UBS will have to switch into a cost optimisation, risk-weighted assets optimisation mode rather than a growth mode," said Antonio Roman, portfolio manager at Axiom Alternative Investments. If UBS had to fully capitalise its foreign units it would have a required CET1 ratio of 17 to 19%, according to the bank's own calculations. That compares with 2024 requirements on competitors Deutsche Bank of 11.2% and Morgan Stanley of 13.5%. A parliamentary inquiry noted that since the Credit Suisse takeover, UBS has had a balance sheet bigger than the Swiss economy and urged the government to give suitable consideration to the foreign units of globally relevant banks. "The issue in Switzerland is far more important given the nature of UBS and the size of the U.S. subsidiary relative to the parent bank," Neil Esho, Secretary General of the Basel Committee on Banking Supervision, recently told Reuters. Once new rules are set, the bank will likely have a phase-in period to adjust, and full compliance should not be required until the 2030s, banking experts say. "The adjustment can't be done all at once," said Hans Gersbach, a banking and economics professor at ETH Zurich university. "Otherwise it's more destabilising than stabilising."
Reuters
27-02-2025
- Business
- Reuters
Swiss banking rule delay a mixed blessing for UBS
ZURICH, Feb 27 (Reuters) - A likely delay in tougher new capital rules for UBS (UBSG.S), opens new tab has fed uncertainty about the outlook for the Swiss bank but also paused potentially onerous burdens as the Trump White House's drive to deregulate puts U.S. business rivals on the back foot. Swiss authorities vowed to make the country's banking sector more robust after the 2023 meltdown of Credit Suisse led to its takeover by UBS, creating an outsize lender that critics felt would have the power to upend the economy if it, too, crumbled. The finance ministry said on Wednesday it wanted parliament, rather than the government alone, to decide how well capitalised UBS's foreign subsidiaries must be, a question which goes to the heart of how many billions of dollars more the bank will need to hold. The change in procedure could delay a final decision on the key metric to at least 2028, the ministry said, at a time when other major banking centres are talking about loosening rules more than a decade and a half after the global financial crisis. "The uncertainty will last longer, which can't be good for UBS," said Vontobel analyst Andreas Venditti. "Their peers don't have this uncertainty, as regulatory discussions in the U.S., UK and EU are going in the opposite direction." UBS shares fell on Thursday by more than 1.5%, underperforming the European banking sector (.SX7P), opens new tab. Overall, though, they are up 80% since the lender bought competitor Credit Suisse. Swiss plans centre on making UBS hold more capital, but after indicating last April a possible sum between $15 billion and $25 billion, officials have proceeded slowly and pointed to the need to keep an eye on what the United States does. Beat Flach, a lawmaker who sat on the parliamentary committee that investigated the Credit Suisse demise, said the government wanted to pressure lawmakers to take responsibility for the new rules - but also to avoid saddling UBS with tough regulations just as rivals loosened them. "We don't want to be the strictest of the strict in an international market," he told Reuters. "If we're too quick, it's not good, but it's also not good if we're too slow. It's like they're driving with the handbrake on." The shift in the capital requirement procedure would bring it into line with the rest of Switzerland's so-called "too-big-to-fail" banking rules which must also pass through parliament. Eva Herzog, a member of the upper house committee in charge of banking regulation, said it made sense to discuss the capital requirement together with the other banking measures, but added: "The negative point is that everything takes so long." UBS has lobbied hard against having to set aside more capital, saying it will put the competitiveness of the banking sector at risk, and some politicians agree. "We mustn't go overboard with the requirements," said Hannes Germann, a lawmaker from the right-wing Swiss People's Party, the biggest group in parliament. "We've done nothing for UBS and the Swiss financial centre if investors turn away." Others fear demand for tougher rules may be slackening as the Credit Suisse collapse fades into the rear view mirror. Several proposals on tightening banking stability filed after previous crises were quietly shelved in the past few days. Stefan Stalmann of Autonomous Research said kicking the new rules into the "long grass" could mean more uncertainty for UBS. "Even if the initial draft of the rules looked benign, UBS may still shy away from the planned substantial ramp-up of payouts in 2026, as it would seem politically insensitive to announce large share buybacks while lobbying parliament," he said. Reacting to the change, UBS said that central aspects of the banking regulation were now being discussed "holistically", adding that any adjustments to the requirements should be targeted, proportionate and internationally coordinated. Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here.
