Switzerland to Soften Capital Ordinance in UBS Win, BofA Says
(Bloomberg) — New bank capital rules to be presented by the Swiss government next month will likely be less severe on UBS Group AG than the current proposals, according to Bank of America analysts.
The ordinance on intangible capital could end up allowing so-called “temporary differences” deferred tax assets to be counted toward CET1 capital up to a cap at 10% of the total, which would be “consistent” with the treatment under international rules known as Basel III, Antonio Reale and Rohan Datta said in a note published Wednesday. This would lower the measure’s capital charge for UBS to $6.2 billion from the current estimate of $10.8 billion, they said, calling it a “potential step in the right direction.”
The Swiss Federal Council will likely publish the ordinance on either April 22 or 29, when it is also due to present the separate — and possibly more far-reaching — proposal on the capital treatment of foreign subsidiaries, the analysts said. While they expect the government to stick with a plan to require full backing by CET1 capital, they note the bill will have to go through parliament, which they expect it to water it down by allowing some of the new requirement to be met with less expensive AT1 capital.
The outcome of both sets of rule changes is arguably the biggest question mark hanging over UBS and its share price. Switzerland’s largest bank recently updated its impact assessment, saying that the plans, if they were to come into force unchanged, would add $22 billion in new capital demands relative to the end of last year.
UBS has repeatedly slammed the current proposals as unacceptable and continues to lobby against them. Bloomberg News reported last year that UBS was considering moving its headquarters out of the country if the Swiss capital reforms prove too onerous.
Swiss officials have concluded that the impact of the new rules will be manageable for UBS, Bloomberg News reported in January. They are preparing a draft law including full capital backing for UBS’s foreign units, though the government has been signaling willingness to soften the separate part of the planned reform dealing with intangible capital, people familiar with the matter said at the time.
Lawmakers are set to debate the foreign subsidiaries bill on May 4, according to a Swiss parliament schedule. That would indicate that the government only has until April 22, when it’s scheduled to hold a meeting, to decide on the draft bill, Bloomberg News previously reported.
The full legislative process for the bill will last at least until the end of the year, the Bank of America analysts said in the note.
A decision by UBS to move its headquarters out of Switzerland would be “an option of last resort,” the analysts said. It’s more likely the firm would first explore asset disposals that could involve the US operations, they said.
–With assistance from Bastian Benrath-Wright.
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