Swiss panel backs compromise on UBS foreign unit capital

A committee in Switzerland’s upper house proposed that UBS cover 50% of the capital backing for its foreign subsidiaries with Common Equity Tier 1, rather than the 100% level sought by the federal government.

For the remaining 50%, the bank would be permitted to use Additional Tier 1 (AT1) instruments to reach full capitalisation of those operations abroad, according to the economic affairs and taxation committee, which is reviewing banking rules after the failure of Credit Suisse.

“This is not a victory for UBS, it’s a solution that serves Switzerland,” said Committee president Erich Ettlin, a lawmaker with the Centre Party.

Ettlin said the plan would allow UBS to stay broadly around its present Common Equity Tier 1 (CET1) level, although it would have to carry a larger amount of AT1 capital.

The committee also wants a further trigger to be set at about an 11% CET1 ratio, reported Reuters.

If UBS drops beneath that point, it would be required to halt investor distributions and share repurchases.

Variable pay would also have to be cut unless the bank restores its capital position within a set period.

Ettlin said those changes would raise the cost of AT1 capital for the bank.

The Swiss authorities want UBS to carry roughly $20bn more in CET1 capital following its emergency rescue of Credit Suisse in 2023, arguing this would support financial stability.

UBS has said that level is too high and would hurt both its competitiveness and the wider Swiss banking industry.

The committee approved the draft banking measures by ten votes to two, with one abstention.

The package now goes to the upper house for a vote, after which it will be reviewed by the lower house committee and chamber, where the lender may face stronger opposition.

Ettlin said a final ruling on the capital rules could come by the end of this year at the earliest, though 2027 is seen as the more likely timeframe.