UBS warns Swiss government to water down bank capital plans – Financial Times
UBS has criticised the Swiss government for failing to properly consider less stringent bank capital reforms, with the lender arguing that proposals to significantly increase its capital requirements have already cost its investors nearly $40bn.
UBS said plans for it to increase its capital requirements were “excessive, disproportionate, not internationally aligned and not targeted”, in a response to a consultation on the reform package published on Monday.
Switzerland’s largest bank has been at loggerheads with the government for nearly two years over plans to force it to back its foreign subsidiaries with an extra $23bn in common equity tier one capital — the most expensive form of bank capital.
The government has said the move is necessary to mitigate the risk of a repeat of the collapse of Credit Suisse, which UBS acquired in a state-orchestrated rescue in 2023.
UBS said in its consultation response that the proposal would damage its ability to compete with international peers, would lead to higher borrowing and service costs for all clients, and would “jeopardise the continuation of the successful UBS business model”. It added that the extra capital requirements being proposed by the government would increase UBS’s costs by $1.7bn a year.
The bank also said that alternative proposals to the government’s “extreme” position, which would “have an equivalent effect at lower cost”, had “not been given adequate consideration”.
“The [government] has rejected these [alternative proposals] because they do not meet the extreme objective of zero risk tolerance,” UBS said.
However, a cross-party group of Swiss politicians in December laid out a set of compromise proposals, which recommended considerably watering down the government’s original plans.
The lawmakers proposed allowing UBS to use additional tier one debt to cover up to half of the capitalisation of its foreign units, significantly reducing the overall capital hit, in a move that buoyed analysts and investors.
The largest party in Switzerland’s parliament, the right-wing Swiss People’s Party, last week said it supported the lawmakers’ alternative proposals, in a further sign that a compromise deal could be getting closer. The party’s consultation document described the government’s proposals as “not proportionate” and expressed concern that parts of the sweeping banking reforms were being presented in isolation.
Its backing was seen as important because the reforms to foreign subsidiaries are subject to parliamentary approval. Parliamentary debates on draft legislation are expected to start during the second half of this year.
The centrist FDP, the party of finance minister Karin Keller-Sutter, has also supported a compromise. Keller-Sutter is the driving force behind the reform proposals.
In a separate submission on Monday, the Swiss Bankers Association warned the government against “recklessly” tightening capital rules beyond international standards, arguing the proposals were disproportionate, unaligned with global peers and risked undermining Switzerland’s competitiveness without materially improving financial stability.
The saga over UBS’s capital position has also weighed heavily on the bank’s share price.
UBS said on Monday the uncertainty had caused its market value to underperform banks in Europe and the US by 27 per cent — at a cost of about $37bn to its investors — between April 2024 and the end of last year, which amounted to “significant value destruction for UBS shareholders in addition to the costs of integrating Credit Suisse”.
The Swiss government has argued that its reform package, which also includes separate measures to strengthen the quality of UBS’s capital base, will substantially reduce the likelihood of another systemically important bank in Switzerland falling into a severe crisis.
However, UBS said on Monday that additional capital costs would damage its international competitiveness at a time when other global financial centres are pursuing lighter-touch banking regulation.
“The [government’s] proposals would significantly increase the requirements and would contrast sharply with developments in Europe and the US, where deregulation initiatives have already been announced,” UBS said.
The bank has held discussions about moving its headquarters to the US if the capital proposals are not watered down, the FT previously reported.
