Swiss Lobby Groups Urge Lawmakers to Adopt AT1 Compromise on UBS
(Bloomberg) — A group of Swiss lobby organizations called on the country’s lawmakers to adopt the least burdensome proposal for new capital requirements on UBS Group AG, adding their voices to a similar push by the bank’s leadership ahead of Wednesday’s crucial political vote on the matter.
UBS is the last remaining bank in Switzerland that competes internationally and “a central pillar of the Swiss stock exchange and capital markets,” the group wrote in a Sept. 18 letter addressed to lawmakers and published Monday.
To ensure that continues to be the case, lawmakers should vote for the proposal that would allow UBS to use hybrid debt known as AT1 bonds to meet much of the new capital requirement, and reject the two other possibilities, the letter said, which was signed by representatives for economiesuisse, the Swiss trade association SGV, Swissmem, SwissHoldings and scienceindustries.
The upper house of Switzerland’s parliament is set to vote on the three proposals on Wednesday. While the adopted proposal is more likely to ultimately be turned into law, a long and complex legislative process would still lie ahead.
UBS Chief Executive Officer Sergio Ermotti and Chairman Colm Kelleher have effectively issued similar appeals over the past few days, saying that the AT1 proposal would be “bearable” for the bank while dismissing the alternatives on the table. Both have said that even the AT1 proposal would still be a problem for the bank.
The Swiss government has previously rejected the AT1 approach.
The Federal Council wants to pass a law that would require UBS to back 100% of the value of its foreign subsidiaries with equity capital known as CET1 at its domestic unit. That would be a big increase from the current rule that only prescribes backing of 60%, parts of which can be met with AT1 bonds.
By contrast, the counterproposal put forward by the Economic Affairs and Taxation Committee of the upper house of parliament would allow the bank to use AT1 bonds to meet as much as half of the 100% capital backing for foreign units. The upper house will also debate a third plan, which would raise the requirement to 90%.
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