Swiss parliamentarians are examining an alternative approach to UBS capital rules that could cut by billions of dollars the impact the bank would face under draft legislation put forward by the government, Reuters reported citing sources.
The draft bill, sent to parliament in April, is designed to tighten safeguards after the Credit Suisse collapse by making UBS fully cover its overseas units with Common Equity Tier 1 (CET1) capital.
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At the time, UBS said it “strongly disagree” with the package, describing it as “extreme”, lacking international alignment.
According to four sources, one option now being discussed would require UBS to support its foreign subsidiaries with about 70% or 80% of CET1 capital, rather than the 100% level set out by the government.
Lawmakers had previously discussed another possible concession that would set the threshold at no less than 50% CET1 backing.
That idea was also part of a lengthy hearing last month, when senior government representatives and UBS executives appeared together before parliament in a tense session in Bern.
Moves by the government to enforce tougher capital standards have pressured UBS shares and led to strains between Finance Minister Karin Keller-Sutter and the bank.
The government has said its proposal would mean UBS needs to raise about $20bn in extra CET1 capital.
Analysts told Reuters that an 80% CET1 requirement would lower that figure to around $15bn, while a 50% standard could leave UBS able to operate with its present core capital position.
Although the parliamentary talks are covered by committee confidentiality, UBS chief executive Sergio Ermotti indicated last week that the bank was likely to receive at least a “black eye” from the changes.
Some lawmakers want to help preserve UBS competitiveness by relying in part on cheaper Additional Tier 1 capital alongside CET1. The government considers AT1 to carry greater risk.
The versions now under discussion in parliament include different possible amounts of AT1 in the structure.
Lawmakers may also try to connect the fee UBS would pay for a proposed public liquidity backstop, a cash buffer for large banks, to the bank’s capital requirements, sources said.
The upper house committee now leading work on the banking bill is broadly regarded as receptive to UBS’s position that expensive regulation would damage both its operations and the wider economy.
The debate has also fed into questions about UBS’ long-term location. Some shareholders have suggested the bank might be better off relocating to the US or the UK to avoid a competitive disadvantage versus large US rivals.
