Ubs falls on the Zurich Stock Exchange. New Swiss rules on capital requirements cause concern

(Il Sole 24 Ore Radiocor)- Ubs fell sharply on the Zurich Stock Exchange as concern grew over the impact of new Swiss rules on bank capital requirements. In detail, the Swiss government, in agreement with the supervisory body Finma and the Swiss Central Bank, made official on Friday a package of measures to strengthen the Swiss banking system and avoid the recurrence of collapses such as that of Credit Suisse, rescued precisely by UBS two years ago, with the 'direction' of the federal executive itself. In the name of 'too big to fail', among other things, there is a new provision requiring the parent company to cover 100% of its foreign subsidiaries in terms of capital requirements, as opposed to the current 60%. For Ubs, the main target of the rule - so much so that it has been referred to as 'Ubs Lex' - this would mean an estimatedadditional capital requirement of between USD 26 billion and USD 24 billion. The proposed transition period for the full entry into force of the new rules is 6 to 8 years, presumably starting in 2027. The Federal Council will submit the proposal for consultation gradually from the autumn of 2025 onwards, and the presentation to Parliament is scheduled for the first half of 2026. The bank led by Sergio Ermotti said on Friday that it "agrees in principle with most of the Swiss Federal Council's regulatory proposals", but stressed that it "profoundly disagrees with the extreme increase required in capital requirements", the levels of which would be "neither proportionate nor internationally aligned". In the statement, Ubs estimates the additional capital required at around USD 24 billion pro-forma, which would bring the Cet 1 ratio to around 19% compared to the bank's target of 12.5-13%. Moreover, the new capital required would be in addition to the $18bn of new equity previously disclosed as part of the Credit Suisse bailout to meet regulations. Thus, 'in total Ubs would be required to hold about $42 billion in additional Cet1 capital'. The bank also confirmed its capital return targets for 2025, i.e. a 10 per cent increase in the dividend and a share buy-back plan, up to 3 billion during the financial year. For Deutsche Bank analysts, the Federal Council's proposal 'is close to the worst scenario predicted in the last 14 months, when the Too Big to Fail reform was announced'. However, in recent weeks this worst-case scenario has moved closer and closer to the base case scenario in many investors' expectations, DB experts add, noting that Ubs' capital returns for investors for 2026 and beyond remain uncertain. Citi's experts believe that the Swiss banking giant should be able to manage the additional capital requirements without affecting future share buybacks and dividends. "Our main concern remains that this decision still needs to go through consultation and a legislative process and therefore may still be amended. In addition to the capital debate, we are concerned" about Ubs' earnings momentum, "which remains weaker than its peers due to persistently low net interest income," they note from Citi. For Vontobel, nothing will change in the short term, while in the medium to long term the bank will be forced to change its strategy or business model or structure and take measures to mitigate the effects of regulation, such as a demerger or asset reduction. For Keefe, Bruyette & Woods, the Sviez government announcement is not as bad as feared and the proposed long transition period is to be welcomed with relief. Goldman Sachs maintained the buy on the stock by reducing its price target from CHF 35 to CHF 32.50. Jp Morgan also maintained its buy recommendation with a target price of CHF 37.