By Dave Graham and Ariane Luthi ZURICH, April 22 (Reuters) - The Swiss government on Wednesday granted UBS concessions on planned new capital rules but stuck to its key demand that the bank fully
Swiss ease planned UBS capital rules but still seek $20 billion boost
By Dave Graham and Oliver Hirt
Switzerland's New Capital Rules for UBS: Concessions and Controversies
ZURICH, April 22 (Reuters) - Switzerland granted UBS concessions on planned new capital rules on Wednesday, but the government stuck to its key demand that the bank fully capitalise its foreign units.
A Swiss banking bill that aims to prevent a repeat of the traumatic collapse of Credit Suisse lowers the immediate capital requirement facing UBS and sets up a showdown in parliament.
Lawmakers Divided Over Stricter Rules
This pits lawmakers adamant that stricter rules are needed to protect taxpayers against others who fear an excessive capital burden will damage Swiss banking. One senior lawmaker in the latter camp quickly said the bill would need amending.
UBS Response to Proposed Legislation
UBS said it strongly disagreed with the proposed legislation, calling the measures "extreme" and arguing that they were not internationally aligned and would have far-reaching consequences for Switzerland's economy.
Switzerland's largest bank acquired Credit Suisse in 2023 in a state-engineered rescue after its local rival unravelled following a string of losses, prompting the government to pledge to make the country's banking sector less risky.
Key Provisions of the New Capital Rules
The Swiss governing Federal Council said the new package of regulations raises the Common Equity Tier 1 (CET1) core capital for UBS by about $20 billion.
"It's absolutely manageable for UBS," Finance Minister Karin Keller-Sutter told a press conference, saying the government had moderated its initial proposals and attached great importance to keeping the Swiss financial sector competitive.
If the new rules had been applied from the start of 2026, the core capital shortfall would have been about $9 billion because UBS exceeds current requirements, the government said.
Changes to CET1 Requirements
It stepped back from requiring full backing of CET1 capital for the value of deferred tax assets and software, opting instead for a maximum three-year amortisation period for software, in line with European Union regulations.
These provisions are regulated by so-called ordinances that the government said would come into force in January 2027.
FEARS FOR THE FUTURE
UBS Concerns Over Foreign Unit Capitalisation
Under the proposed rules, UBS should back its foreign units in full, rather than 60% as is required now, and do so only with CET1 capital, the government said, maintaining its previous demand.
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.
Government's Position and Economic Impact
Keller-Sutter said the measures were not intended to make it easier for UBS to grow abroad but the government had a responsibility to protect taxpayers.
"If we get into a tricky situation with a bank of UBS's size, how is Switzerland meant to handle that?" she said, noting the UBS balance sheet is much larger than the Swiss economy.
Analyst Reactions
Analysts gave the bill a mixed reception.
"Overall this is a potential positive for near-term buybacks, but unhelpful for end-state capital requirements, placing UBS at a competitive disadvantage to international peers," Citi analysts said.
The government calculated that once its measures were implemented, UBS's CET1 capital ratio would be about 15.5%, in line with the current ratios of its international competitors.
PARLIAMENTARY SHOWDOWN
Parliament's Role in Finalizing the Rules
Lawmakers will be the final arbiters and are expected to start debating the rules on May 4. The plan envisages a seven-year transition phase.
Wary of the bill being watered down, the government threatened to revisit the rules if parliament did not "sufficiently" implement its demands that UBS's foreign units be fully capitalised.
In such a case, the Federal Council said it reserved the right to reassess capital rules for deferred tax assets.
Potential Legislative Challenges
How that would work in practice is unclear. Parliament can theoretically override such edicts by amending the underlying law, but that could take years.
Alternative Proposals and Political Debate
Concerned about the burden on UBS, lawmakers from four parties pitched a proposal in December that could allow it to partially back foreign subsidiaries with so-called Additional Tier 1 (AT1) bonds, which would lower the cost.
One of those lawmakers, Thierry Burkart of the centre-right Liberals, or FDP, welcomed the concessions made by the government but said the legislation would need to be improved in parliament in line with the AT1 proposal.
Burkart told Reuters that the lawmakers' proposal backed strict regulation but that greater consideration needed to be given to ensuring the Swiss financial sector remains competitive.
Government's Stance on AT1 Bonds
The government argues that the loss-absorbing capacity of AT1 bonds is too limited.
(Reporting by Dave Graham, Ariane Luthi and Oliver Hirt; Additional reporting by John Revill; Editing by Tomasz Janowski, Alexander Smith and David Goodman)
