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UBS will have to shore up its capital with 20 billion due to regulatory changes

Date: July 18, 2024 Time: 05:22:35

New Swiss banking giant UBS faces an increase in capital regulation requirements that could reach around €20 billion under proposed reforms following the collapse of Credit Suisse. Swiss Finance Minister Karin Keller-Sutter is aiming for systemically important lenders to have full capital support against their foreign units, according to sources familiar with the matter consulted by Bloomberg.

For UBS, these changes would likely translate into a capital hit in the mid-range of 15 billion to 25 billion euros, said the source who asked not to be identified discussing internal deliberations. UBS shares fell 2.7% in Zurich and are down 9% over the last five sessions. A spokesperson for UBS — which reported regulatory Tier 1 capital of $79 billion at the end of 2023 — declined to comment.

The Federal Council wants systemically important Swiss banks to hold significantly more capital against their foreign subsidiaries, while bank-specific capital levels should be increased to take more account of future risks.

The proposals would see UBS face a “substantial increase” in regulatory capital requirements, the government said last week. “Under currently applicable requirements, UBS’s parent bank must provide 60% capital support for holdings in a foreign subsidiary,” he noted. “The Federal Council aims for a significant increase in this capital support,” leading to a substantial increase in the overall requirements.

Swiss newspaper Handelszeitung has reported on the possibility of an impact of up to €25 billion, while Autónoma Research analyst Stef Stalmann has said additional capital requirements in the range of €10 billion to €15 billion could affect expectations. active share buybacks. In any case, the bank faces a hit in raising that money.

At the end of 2023, UBS’s CET1 (Common Equity Tier 1) ratio, a key measure of financial strength, was 14.5% and its leverage ratio of CET1 was 4.7%. Both were above their expected guidance which stood at approximately 14% and over 4% respectively.

Keller-Sutter noted that an impact in the range of 15 to 25 billion was “plausible.” Regardless of the nominal sum, he prefers support for foreign subsidiaries that is closer to 100%, according to Bloomberg. UBS executives have already spoken out against the need for more capital.

The bank’s president, Colm Kelleher, argued against higher capital requirements in an interview with the Neue Zürcher Zeitung last month. “If you have too much capital, you penalize shareholders, but also clients, because banking services become more expensive. We already have capital buffers that are well above the regulatory minimum,” he defended.

The proposals from the Swiss regulator and the government of that country are part of a general response to the most severe financial crisis in Switzerland in more than a decade, such as the one that occurred two months ago. The plan aims to address a weakness that was identified when the Swiss state and UBS came to the rescue of Credit Suisse.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.
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