UBS says Swiss capital rule compromise still costly

UBS welcomed a Swiss parliamentary committee's proposed compromise on tougher capital reserve rules, but warned Tuesday that the plan would still raise costs for the bank.

The upper house's Economic Affairs and Taxation Committee recommended Monday evening that UBS be allowed to meet half of the new capital reserve requirements sought by the government with AT1 convertible bonds. The rest would have to be covered with hard equity capital, or CET1, if the securities are reformed.

The Swiss government proposed stronger rules after the 2023 collapse of Credit Suisse and UBS's takeover of its domestic rival. The government has said the plan would require UBS to set aside about $20 billion in additional reserves so it could fully cover holdings in foreign subsidiaries in the event of a shock.

UBS said the committee had tried to consider alternatives to what it called the government's extreme proposals. But it said the compromise would still “lead to a significant increase in costs” and would raise financing costs for Switzerland's financial centre and economy.

The bank said that, together with other proposed banking rules, the committee's path would require it “to hold around $30 billion of incremental Tier 1 capital since the acquisition of Credit Suisse”. UBS has previously warned that very tight rules would put it at a disadvantage against foreign competitors.

Swiss Finance Minister Karin Keller-Sutter criticised the committee proposal. She told public broadcaster RTS that she was “not surprised”, citing what she called “quite strong lobbying by UBS”, and warned that weakening the government's proposed banking rules would come “at the expense of the Swiss taxpayer”.

The recommendation is an early step in a longer legislative process. The proposal still needs to go before the full upper house of parliament and then the lower house. It may later face a popular vote under Switzerland's direct democracy system.

Ausano Cajrati Crivelli of Zurich Cantonal Bank called the recommendation “a first step” but said there was “a long way to go before a definitive solution is reached”.