Switzerland's upper house of parliament, the Council of States, voted 29 to 16 to mandate that UBS Group AG back its foreign units with 90% Common Equity Tier 1 (CET1) capital. This decision, which is part of a broader banking regulation bill following the 2023 collapse of Credit Suisse, represents a significant tightening of capital requirements for UBS. While the government had initially proposed a 100% CET1 backing, the 90% figure is still largely aligned with Finance Minister Karin Keller-Sutter's stance and is considerably more stringent than UBS's preferred alternative involving AT1 debt.
UBS has strongly criticized the decision, stating it would lead to an "excessive tightening of Swiss capital requirements, which are already among the most stringent globally." The bank estimates that the 90% CET1 backing would necessitate holding approximately $16 billion of additional CET1 capital at UBS AG. This is on top of about $2 billion in additional CET1 capital required from earlier ordinance-level measures and $15 billion under existing regulations due to the Credit Suisse acquisition. In total, UBS would be required to hold around $33 billion of incremental CET1 capital since the acquisition of Credit Suisse, with an estimated annual cost of approximately $2.5 billion.
The capital rules bill will now proceed to the lower house of parliament. A final decision on the new regulations is not expected until the end of 2026 at the earliest, and more likely in 2027. UBS CEO Sergio Ermotti and Chairman Colm Kelleher have consistently lobbied against such stringent requirements, arguing they would make the bank less competitive. Analysts from Goldman Sachs Group Inc. and Citigroup Inc. also project an increase of around $17 billion in capital requirements due to the 90% rule, calling it a more onerous outcome than previously discussed compromises.
The prolonged uncertainty surrounding these higher capital requirements has reportedly weighed on UBS's share price, which has seen a 10% gain this year compared to over 20% for an index of European peers. The vote also caused UBS's riskiest bonds (AT1s) to rise, as the decision diminishes the likelihood of more AT1 debt issuance. Finance Minister Keller-Sutter has emphasized that these measures are crucial to protect taxpayers and ensure UBS remains resilient in a crisis, countering arguments that the bank lacks the funds for the capital build-up and should instead use them to strengthen the Swiss parent bank rather than for shareholder dividends or buybacks.
