By Oliver Hirt ZURICH, April 23 (Reuters) - Plans to impose tougher capital requirements on UBS met with a frosty reception from investors on Thursday amid concerns about their longer-term
Investors React to Tougher UBS Capital Requirements and Regulatory Changes
Market Response and Regulatory Implications for UBS
By Oliver Hirt
ZURICH, April 23 (Reuters) - Plans to impose tougher capital requirements on UBS met with a frosty reception from investors on Thursday amid concerns about their longer-term implications for the bank's ability to compete with rivals.
UBS shares fell, underperforming peers after the regulations, revealed on Wednesday afternoon, proposed raising UBS's Common Equity Tier 1 (CET1) core capital burden by some $20 billion, and mandated the bank must fully capitalise its foreign units.
However, the government did water down proposals covering the treatment of deferred tax assets and software.
Investor Sentiment and Market Performance
"The worst case scenario has been avoided, but the capital requirements are still severe for UBS," said Maurizio Porfiri, chief investment officer at broker Maverix Securities.
Investors fear the plans aimed at ensuring Switzerland does not endure a repeat of the 2023 collapse of Credit Suisse could hurt returns and growth at Europe's largest wealth manager.
Shares in UBS were down almost 3% by 1245 GMT, well below the broader European banking index, which was down 1.2%.
Shareholder Concerns and Future Outlook
SHAREHOLDERS COULD SEE LOWER RETURNS
UBS is sticking to its dividend plans for this year, as the regulatory changes would not take effect before 2027.
Over the longer term though, analysts said shareholders could receive less than previously expected.
Higher capital requirements weigh on return on equity, Porfiri said, making the bank less attractive for investors.
Competitive Landscape and Strategic Risks
While the United States is liberalising capital rules, Switzerland is moving in the opposite direction. "This also risks putting UBS at a competitive disadvantage," he said.
UBS fears that if the new rules are too strict, it could become a takeover target and may need to pursue contingency plans that include possibly moving its headquarters abroad.
Citi analysts said UBS could face headwinds in parts of its investment banking business compared to rivals.
As long as regulatory uncertainty persists, UBS shares are likely to trade at a discount to peers, said David Benamou, chief investment officer at Axiom Alternative Investment.
Regulatory Debate and Political Response
How strict the final rules are will depend on parliament, where in December several lawmakers pitched a proposal that could allow UBS to partially back foreign subsidiaries with so-called Additional Tier 1 (AT1) bonds to lower the cost.
One of those lawmakers, Thierry Burkart of the centre-right Liberals, or FDP, said the bill would need to be improved in line with the AT1 proposal and that more consideration should be given to keeping the Swiss financial sector competitive.
Another senior lawmaker, Hannes Germann of the right-wing Swiss People's Party, told Reuters the bill went too far and risked doing more harm than good in its current form.
(Additional reporting by Dave GrahamEditing by Keith Weir)
