Ubs runs in Zurich after compromise proposal on capital strengthening
A group of Swiss parliamentarians speculated that the bank could use Additional Tier 1 debt to cover up to 50 per cent of the capital requirements of its foreign subsidiaries
(Il Sole 24 Ore Radiocor)- Milan, Dec 12 - Ubs soared on the Zurich Stock Exchange after a group of Swiss parliamentarians proposed a compromise on strengthening the group's capital requirements compared to the strict regulations put on the table so far by the Swiss authorities. The Swiss government has proposed that Ubs, the only systemically important bank in the Swiss Confederation after the acquisition of Credit Suisse in 2023, should capitalise its foreign subsidiaries at 100%, up from the current 60%, to cover potential losses abroad. To achieve this, Berne has proposed that Ubs use Cet1 capital. According to the bank, this would require an additional capital injection of USD 24 billion, which would undermine the group's own international competitiveness.
In the past months, Ubs has repeatedly expressed its dissent and even ventilated the possibility of moving to the United States. Now - the newspaper Neue Zuercher Zeitung reports - according to a proposal put forward by a group of parliamentarians, Ubs could use Additional Tier 1 (AT1) debt to cover up to 50% of the capital requirements of its foreign subsidiaries. This is a cheaper hybrid instrument, which would ease the burden on the bank. MPs from the Centre Democratic Union (Udc), the Liberals (Plr), the Centre Party and the Liberal Green Party support this proposal, according to Thierry Burkart, former president of the Plr.
According to the text of the proposal, Switzerland intends to maintain the strictest regulations in the world, but 'the gap with the regulations of the major financial centres in the EU, the UK, the US and Asia must never be so wide as to jeopardise competitiveness'. Hence the call for a balanced solution. The plan also envisages limiting investment banking activities to 30% of the risk-weighted assets on the bank's balance sheet. Ubs commented that the new proposal is 'a more constructive step than the government's extreme approach', while stating that Switzerland already applies some of the strictest capital requirements in the world. For this reason, the bank called for the regulation to be "proportionate and aligned with international standards". Analysts at AlphaValue find the new proposal 'strange', however, because significant expected returns on AT1 bonds will be required for lenders to return to investing in this type of high-risk security. Especially since on the eve of the proposal 'the ECB confirmed that AT1 bonds represent low-quality capital that should be avoided'.
