Swiss lawmakers have indicated to senior UBS executives that they will soften stringent new capital rules, which were initially proposed to increase UBS's capital requirements by $22 billion (CHF17.6 billion). This move comes as Switzerland finalizes decisions on how much capital its largest bank should hold, a package unveiled by Finance Minister Karin Keller-Sutter in response to the 2023 Credit Suisse collapse. The government's full decision could be released as early as April, with the most contentious element – foreign capital requirements – set for parliamentary debate. UBS has privately warned that failure to reach a compromise could lead the bank to consider moving to a more favorable jurisdiction.
The proposed regulatory package has two main components. The first, involving executive ordinance changes, focuses on the quality of UBS's capital, tightening the treatment of assets like deferred tax assets and in-house software. These measures are estimated to add between $2 billion and $3 billion to UBS's core capital requirements, though analysts believe the broader impact could reach $11 billion due to restrictions on what types of capital can be counted. The second, and larger, component would require UBS to hold significantly more capital against its international operations, particularly by increasing equity backing for its foreign subsidiaries. This is designed to ensure these units can be stabilized independently during a crisis without relying on the Swiss parent company.
Lawmakers have greater influence over the larger $20 billion capital component related to foreign subsidiaries, raising the possibility of a material reduction in the final burden for UBS. Discussions are ongoing within the upper house's Economic Affairs and Taxation Committee, which is considering lowering the requirement for UBS to back its foreign units with 100% Common Equity Tier 1 (CET1) capital to potentially 70%, 80%, or even 50%. This could reduce the additional capital buffer needed to anywhere from $12 billion to zero. Lawmakers are aiming to balance financial stability concerns with maintaining UBS's international competitiveness, potentially allowing the bank to partly use cheaper Additional Tier 1 capital to back its foreign units. UBS's stock initially climbed on news of a potential compromise but has since fallen, closing recently at CHF29.56 after hitting a 17-year high in December.
