UBS Shares Rise on Report Swiss May Ease Part of Capital Hit
(Bloomberg) — UBS Group AG shares rose after Reuters reported that the Swiss government was considering easing part of a bank regulation package that would add billions to the lender’s capital requirements.
The potential softening relates to planned changes for valuing deferred tax assets and software, the newswire said, citing three people familiar with the matter that it didn’t identify. The government estimated in June that such changes would add some $3 billion in capital requirements to the lender.
A far more onerous proposal requiring UBS to fully back its foreign subsidiaries to the tune of more than $20 billion will still be put in front of Swiss parliament. But any sign that the Swiss government’s stance is softening is good news for UBS, which has spent months unsuccessfully lobbying to water down demands it has called “extreme.”
“The decision-making process on this issue is not yet complete, and the Federal Council has not yet made a decision,” a finance ministry spokesperson said. “We are therefore unable to comment on what the plans contain.” A spokesperson for UBS declined to comment.
UBS shares closed up 4.1% in Zurich, the most since June.
Uncertainty over its future capital requirements has weighed on UBS shares, which have lagged other European bank stocks this year, though the bank was starting from a higher valuation.
The reported softening relates to Switzerland’s planned new rules around capital quality. These would update how banks have to quantify intangible items such as deferred tax assets, in-house software and other hard-to-value items they have on their books.
Those changes are planned to be implemented via an ordinance which doesn’t require lawmakers’ sign-off. Therefore they may enter force as early as the middle of next year.
By contrast, the parliamentary debate on the proposal around foreign units is expected to only start about then. Any new law likely won’t take effect before 2028. As UBS can lobby lawmakers, there’s a chance that the draft will be watered down. In any case, the government has proposed a phase-in period of between 6 and 8 years once the changes are agreed.
The bank has argued that the capital measures are an overreaction to the collapse of Credit Suisse in 2023 and puts them at a disadvantage to global peers. It has warned it could hurt their plans for investor payouts.
The lender has been looking at options with regard to the Swiss capital issue since earlier this year. Options theoretically on the table range from the dramatic — a merger or acquisition deal with a non-Swiss bank allowing a change in domicile and escape from the oncoming rules — to the more mundane, such as a range of technical tweaks that can put just enough capital away over the coming years.
Last month, UBS Chief Executive Officer Sergio Ermotti said the bank was focused on seeking a compromise on contentious capital rules, pushing back on speculation that the bank is looking to leave Switzerland.
–With assistance from Michael Msika and Bre Bradham.
(Updates with context from sixth paragraph.)
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