Public debate: People walking by the UBS headquarters in Zurich. The lender says that if the worst-case scenario materialises, it would need to retain profits that could otherwise have been paid out to shareholders. — Bloomberg
ZURICH: The Swiss government says it will seek lawmakers’ sign-off on how it should design capital rules affecting UBS Group AG, slowing down the likely implementation of higher requirements that the bank had fought stiffly against.
Changes to rules on the capital backing required for foreign subsidiaries will now be enacted via legislation instead of administrative order, the Finance Ministry said in a statement on Wednesday.
The requirements likely now wouldn’t come into force until 2028 or later.
The decision comes as something of a reprieve for Switzerland’s largest bank, which faced the prospect of a US$25bil hike in its regulatory capital level as soon as 2026 and less room to hand profits back to shareholders.
Uncertainty over the looming capital demand has depressed the bank’s share price, leaving it the worst performer among major European lenders this year.
The proposed changes to the regulations affecting UBS centred on how units in other countries were accounted for in the capital of the parent bank.
Finma, Switzerland’s regulator, and the central bank had previously argued that the lender should maintain 100% of the value of those units in loss-absorbing capital at home.
UBS had argued against the plan, on the basis that valuing its other units at effectively zero made no sense, would tie up capital and put it at a disadvantage to global peers.
The regulators had previously identified the issue as a key factor in the demise of Credit Suisse, which UBS bought in an emergency rescue in 2023.
The ministry’s decision to seek approval from lawmakers is based on the stance which a parliamentary investigation committee, or PUK, took on the Credit Suisse takeover when it presented its findings in December, according to the statement.
“In view of the significance for financial stability and the economy on the one hand, and the PUK’s findings on the other, it seems appropriate to regulate this issue at the legislative level and thus submit it to Parliament,” the ministry said.
UBS has said that if the worst-case scenario materialised, it would need to retain profits that could otherwise have been paid out to shareholders.
While UBS can lobby lawmakers more directly than the ministry, the move doesn’t mean that the lender can look forward to a better outcome, according to Georg Lutz, a professor for political science at the University of Lausanne.
“Taking the issue to Parliament means taking the debate public,” he said. “After the Credit Suisse crisis, bankers aren’t really in the public’s favour.
“So while the ministry’s move delays the decision, a better outcome for UBS in the end remains very uncertain,” he added. — Bloomberg
