UBS Capital Debate in Parliament Puts Bill on Easing Track
(Bloomberg) — The parliamentary debate of new capital requirements for UBS Group AG earlier this month focused only on softening the government plan, putting the process on track for an outcome below the current estimate of $20 billion.
Lawmakers in the Upper House’s Economic Affairs and Taxation Committee made a large number of change requests on May 4, including demands to cut the planned increase by half or even more, or to link it to the size of UBS’s foreign operations, people familiar with the matter said. Each one would lessen the capital impact on the bank, and not a single proposal sought to strengthen it, the people said, asking not be identified discussing confidential deliberations.
The changes discussed in the parliament committee indicate consensus across party lines that the government’s current plans are too far-reaching, even if there’s also broad agreement that UBS’s capital requirements need to go up.
Shares in UBS rose as much 0.7% in early Zurich trading on Wednesday.
Representatives for the government and the parliament declined to comment.
Led by Finance Minister Karin Keller-Sutter, the government known as Federal Council wants to force UBS to raise the amount of common equity capital it holds domestically against its foreign operations to 100% of each unit’s equity value, from 60% at present. UBS estimates that this would require it to add roughly $20 billion in so-called CET1 capital to its Swiss entity, based on last year’s balance sheet.
The two chambers of parliament will need to endorse the bill, submitted by the Federal Council last month, for it to become law. The process is expected to last at least until next year and it opens the door to changes.
One of the proposals entered in the parliamentary committee earlier this month would increase the foreign unit backing only to 80% and another one to just 75%, the people said. Another idea was to raise the backing requirement to 80% at first and subsequently increase it further if the size of UBS’s foreign operations crosses defined thresholds relative to Switzerland’s gross domestic product, the people said.
The government has argued that the demise of Credit Suisse might have been avoided if the bank had been able to sell or wind down its foreign units without incurring a regulatory capital hit at home. Domestic CET1 capital backing of 100% would eliminate the perceived problem.
Keller-Sutter has described UBS’s businesses abroad as the biggest risk for Switzerland emanating from the bank. She has also threatened to revoke some other capital concessions made by the government last month if parliament waters down the bill.
UBS under Chief Executive Officer Sergio Ermotti and Chairman Colm Kelleher has said that the bill is partially misguided since the reasons for the Credit Suisse failure were to a large extent idiosyncratic. Switzerland’s largest bank by far has also said that the plan would severely damage its business model and, by extension, hurt the domestic economy.
The committee meeting in early May was the first parliamentary hearing and it concluded without a recommendation on whether lawmakers of the chamber should support or reject the government proposal. A decision on this is now expected when the body will reconvene on Aug. 10 and 11, the people familiar with the matter said.
–With assistance from Myriam Balezou.
(Adds share price move in fourth paragraph.)
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