Switzerland Set to Soften Some UBS Capital Rules, TP Reports
(Bloomberg) — The Swiss government is set to present softened bank capital rules later today, according to the news portal Tippinpoint, in a move that would reduce the expected impact for UBS Group AG.
The so-called ordinance will allow UBS to continue counting deferred tax assets toward its regulatory capital, the report said citing unidentified sources. UBS will also be allowed to remove software from that metric over a period of three years, it said.
A spokesperson for the finance ministry, which leads preparations for the announcement, declined to comment to Bloomberg News. A UBS spokesperson declined as well.
The two changes would substantially lower the impact on UBS’s capital buffer compared with the initial proposals. Those would have fully deducted software and DTAs from so-called CET1 capital right away. UBS has estimated that its CET1 capital would drop by roughly $11 billion in that scenario.
UBS shares erased previous losses on the news and were up 0.9% at 10:26 a.m.
The Swiss government, or Federal Council, is also set to present a draft law to determine how much in additional capital UBS needs to hold at home against activities abroad. Bern has publicly said it wants to see the lender back those up with 100% CET1 capital.
The government will stick to that plan, Tippinpoint reported.
People familiar with the government’s thinking said earlier this year that the Federal Council will likely end up presenting a softened version of the ordinance, which would provide some relief to UBS. But they also said the government intends to keep the draft law on foreign subsidiaries as previously outlined, meaning it will probably submit a bill to parliament proposing full capital backing.
The full capital backing of foreign units would lead to a fresh need of about $20 billion at UBS’s domestic entity UBS AG, according to the bank’s latest projections. The bill needs parliamentary approval, a process that could lead to significant tweaks.
Switzerland’s rationale for higher capital requirement is to build a bulwark against future financial crashes following the Credit Suisse demise three years ago.
For UBS, higher capital requirements will constrain its strategy by curtailing its ability to grow internationally and to make investor payouts. It has long lobbied hard against the measures and has received backing in that effort from many business leaders and politicians.
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