Switzerland has softened parts of its planned capital package for UBS, but still indicates the bank would need to build roughly $20bn in additional buffers to help prevent a repeat of the failures that brought down Credit Suisse.
The Swiss Federal Council has published its final Capital Adequacy Ordinance (CAO), which sets out the regulatory capital treatment for selected assets at banks headquartered in Switzerland.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
At the same time, it has submitted to parliament its final proposal to amend the Banking Act, focusing on how systemically important banks must treat foreign participations for capital purposes.
The proposal will now be debated through the normal parliamentary process.
Reacting to the proposal, UBS in a statement said it “strongly disagree” with the package, describing it as “extreme”, lacking international alignment and as one that “disregards concerns” raised by most consultation respondents. UBS also said the measures would have far-reaching consequences for the Swiss economy.
Under the final CAO, UBS’s capitalised software will be amortised for capital purposes over no more than three years, regardless of its economic useful life.
The CAO also revises prudential valuation adjustments, increasing capital deductions for assets and liabilities where valuations are uncertain.
The treatment of deferred tax assets arising from temporary differences is unchanged and remains aligned with international regulation.
For Additional Tier 1 (AT1) instruments, the Federal Council has decided not to proceed with proposed adjustments for now, saying it is more appropriate to await international developments.
The valuation adjustment changes are due to take effect on 1 January 2027. The software capital treatment must be implemented by 1 January 2029.
UBS estimates the CAO measures, once fully implemented, would remove around $4bn of net CET1 capital at group level, reducing the group’s CET1 ratio by about 0.8 percentage points.
At UBS AG standalone, it estimates a net CET1 impact of around $2bn.
UBS said the proposal would require investments in foreign participations to be fully deducted from its standalone CET1 capital.
The phase-in would run over seven years, assuming no parliamentary delays. It would start with a 65% deduction requirement in the first year and rise to 100%, increasing by five percentage points each year.
UBS estimates a full deduction of investments in foreign subsidiaries would require around $20bn of additional CET1 capital.
It said that, when combined with the $2bn net CET1 effect at UBS AG from the CAO changes, total incremental CET1 would be about $22bn.
UBS also said the $22bn would come in addition to around $15bn of incremental capital it has previously communicated following its acquisition of Credit Suisse to meet existing regulations.
That $15bn includes around $9bn to remove regulatory concessions granted to Credit Suisse and around $6bn to meet progressive requirements due to the larger combined group.
UBS said this would bring the total additional CET1 requirement to around $37bn, with an annual capital cost of around $3bn.
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.
UBS chairman Colm Kelleher told shareholders at the bank’s annual meeting last week that UBS wants to keep its headquarters in Switzerland, but must evaluate how to minimise negative effects on its business.
