Switzerland's upper house of parliament passed a compromise plan on UBS Group AG's capital requirements, largely mirroring the government's initial demands. The proposal mandates that UBS must back 90% of the value of its foreign units with Common Equity Tier 1 (CET1) capital. This is a reduction from the government's original push for 100% backing, but significantly diverges from UBS's preferred solution which involved substantial use of convertible debt, specifically AT1 bonds.
UBS CEO Sergio Ermotti and Chairman Colm Kelleher had actively opposed both the 100% and 90% CET1 backing proposals, arguing that they would negatively impact the bank's competitiveness. Finance Minister Karin Keller-Sutter, however, strongly advocated for higher equity capital, stressing that it would strengthen the Swiss parent bank and protect taxpayers from future crises, citing the insufficient capital during Credit Suisse's collapse as a key lesson. She dismissed the use of AT1 bonds as a substitute for CET1 capital due to their unreliability in crisis scenarios.
The vote in the Council of States was 29 to 16 in favor of the 90% CET1 proposal. This outcome is considered a setback for UBS, as it aligns more closely with the government's stringent requirements than the bank's preferred, less costly option. The bill will now proceed to the lower house of parliament, and a final decision on UBS's capital requirements is not expected until at least 2027, with the possibility of a public plebiscite. UBS shares experienced little change following the vote, despite earlier gains, reflecting ongoing uncertainty.
