UBS Head Ermotti Calls AT1 Capital Compromise Bearable, NZZ Says

(Bloomberg) — UBS Group AG Chief Executive Officer Sergio Ermotti said a proposal by Swiss lawmakers for the bank’s future capital requirements is “bearable” but would still deal a blow to the lender, according to a newspaper interview.

“Are we happy about it? No, we are not,” Neue Zuercher Zeitung cited Ermotti as saying. “We helped save Switzerland from a reputation-damaging debacle during the Credit Suisse rescue.”

“It’s still a blow but one that is bearable,” he said, referring to a proposal under which UBS could use 50% of debt instruments to back its foreign businesses.

Ermotti said that the worst-case scenario is a still-existing proposal calling for a full capital backing of UBS’s foreign businesses with 90% or 100% of “hard” core capital, according to NZZ.

A decisive vote is scheduled in one chamber of Switzerland’s parliament on Wednesday, likely setting off a lengthy political process. The lawmakers will vote between 100% capital backing for the bank’s foreign units, which is backed by the government, an alternative with a slightly lower capital requirement and the so-called AT1 compromise, which would allow UBS to capitalize the foreign businesses with 50% equity and 50% AT1 bonds.

UBS took over Credit Suisse in a dramatic rescue in 2023. Since then, Switzerland’s largest bank has been fighting with the Swiss government, its regulators and the Swiss National Bank to fend off stricter capital requirements for UBS’s foreign businesses.

The government argues that a lack of capital was a root cause for Credit Suisse’s demise. UBS says stricter capitalization rules wouldn’t prevent future crises and that its business model and risk culture differ from Credit Suisse’s.

Holding more capital for its foreign units would make growth more costly for UBS.

“At its peak, more than half of Credit Suisse’s parent entity consisted of regulatory concessions and interim rules,” Ermotti told NZZ.

He said the AT1 compromise still deals a blow to the wealth management juggernaut as UBS would have to amass another $13 billion in additional Tier 1 capital, or $2 billion per year considering a phase-in period.

Asked about his future at UBS, Ermotti said that ending his tenure as CEO is “not a topic” and reiterated that the Swiss National Bank and Switzerland’s financial regulator FINMA deserve part of the blame for the demise of Credit Suisse.

Ermotti initially led UBS from 2011 to 2020. The Swiss executive took the helm a few years after the bank was rescued by the Swiss government during the financial crisis. Ermotti returned as CEO after UBS took over crosstown rival Credit Suisse in a government-brokered emergency deal in 2023 to lead the integration.

Ermotti refrained from saying exactly which capital rules would be an ideal outcome for UBS.

He was cited as saying that UBS investors have had to pay some $15 billion for Credit Suisse recapitalization and restructuring. UBS will only reach the same return on equity it had prior to the Credit Suisse takeover at the end of this year, he said, rebuffing the notion that UBS bought Credit Suisse on the cheap.

“If I did so and the political solution ended up matching that figure, it would be said that the political establishment had caved in and done exactly what UBS dictated,” he said. “The current situation is essentially: UBS against the rest. In such a scenario, it is extremely difficult to keep a cool head.”

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