RBC Capital Markets analysts, led by Miki Carciumaru, have projected that recent changes to Swiss capital requirements could lead to a reduction of up to 10% in UBS Group AG's earnings per share (EPS). This estimation follows a decision by the upper house of Switzerland's parliament to mandate that UBS back its foreign participations with 90% Common Equity Tier 1 (CET1) capital. This move would require UBS AG to hold approximately $16 billion in additional CET1 capital at its domestic unit, according to UBS's own estimates, on top of about $2 billion already required from earlier ordinance-level measures. The total incremental CET1 capital since the Credit Suisse acquisition could amount to around $33 billion, with annual costs of about $2.5 billion.
UBS has expressed strong disapproval of the Council of States' decision, stating it is not a compromise and fails to address the root causes of the Credit Suisse collapse. The bank argues that this excessive tightening of capital requirements disregards concerns raised by a majority of respondents in a democratic consultation process, including business representatives, employee associations, and most cantons, who viewed the Federal Council's initial proposals as damaging to the Swiss economy. UBS had previously pushed for an alternative plan involving a higher use of Additional Tier 1 (AT1) debt, which was considered less costly than the government's current proposal.
The Swiss National Bank (SNB) and Finance Minister Karin Keller-Sutter have, however, cautiously welcomed the parliamentary decision. SNB Vice President Antoine Martin stated that 90% CET1 capital for foreign participations is a "good amount," though 100% would have been "even better from the perspective of financial stability." Finance Minister Keller-Sutter has maintained that her plan is essential to ensure UBS can safely dispose of its foreign businesses in a crisis without depleting capital at home. She emphasized that UBS possesses the necessary funds for this capital buildup, framing the debate around whether these funds should strengthen the Swiss parent bank or be distributed to shareholders through dividends and buybacks.
Analysts at Goldman Sachs Group Inc. and Citigroup Inc. have also estimated the additional capital requirements at around $17 billion as a result of the 90% rule, calling it a more onerous outcome than previously discussed compromises. Despite the significant implications, UBS shares remained broadly unchanged in Zurich after the vote. However, the ongoing uncertainty regarding higher capital requirements has negatively impacted UBS's share price performance over the past couple of years, with its stock up about 10% this year compared to a more than 20% gain for an index of European peers. The rejection of the AT1 plan did lead to a slight increase in the price of existing UBS bonds.
