UBS Capital Requirements Could Climb US$16B on Swiss Foreign Unit Rule

A Swiss upper house decision could require UBS to hold about US$16 billion more in core capital, the bank estimates.

The bank said the outcome, if confirmed, would result in a further excessive tightening of Swiss capital requirements, which are already among the most stringent globally.

The Council of States decision calls for UBS to back its stakes in foreign units with 90% Common Equity Tier 1 (CET1) capital.

UBS said,

“This political outcome is not a compromise and fails to address the root causes of the Credit Suisse collapse.”

The bank also said the decision does not take account of serious concerns raised during consultation.

These came from the overwhelming majority of respondents, including all business representatives, relevant employee associations and most cantons.

Those groups dismissed the Federal Council’s proposals as damaging to the Swiss economy.

In addition, UBS said the outcome overlooks its shareholders’ financial support in protecting Switzerland’s reputation through the acquisition of Credit Suisse.

The US$16B would come on top of about US$2 billion in extra CET1 capital required at UBS. That amount stems from ordinance-level measures announced earlier this year.

Meanwhile, existing rules require UBS to hold around US$15 billion in CET1 capital following the acquisition, as previously disclosed.

In total, UBS would need around US$33 billion in extra CET1 capital since the acquisition if the decision stands.

At the same time, the ordinance-level changes would remove an estimated US$4 billion of CET1 capital at Group level once in effect.

The bank put the total annual cost from the acquisition at around US$2.5 billion.

As the parliamentary process continues, UBS said it will focus on protecting its long-term interests.

Featured image: Edited by Fintech News Switzerland, based on image by UBS via its website.

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