UBS shares hit 17 year-high as Swiss lawmakers pitch capital compromise

ZURICH: Swiss lawmakers have floated a compromise on new capital rules for UBS to try to ensure it remains internationally competitive, sending the bank’s shares to their highest since 2008.

The Swiss government has proposed that UBS, Switzerland’s sole remaining global bank since it bought ailing Credit Suisse in 2023, should capitalise its foreign subsidiaries by 100% rather than 60% at present, to cover potential losses abroad.

UBS shares jumped more than 4.5% to as high as 35.17 Swiss francs after the Neue Zuercher Zeitung newspaper reported the proposal from a group of lawmakers. The bank’s shares have now doubled in value since the eve of its purchase of Credit Suisse.

UBS’s balance sheet is roughly double the size of annual Swiss economic output, making the government determined to avoid a repeat of the collapse of Credit Suisse.

The government’s proposal forms the core of reforms that UBS says would mean finding an additional $24 billion in capital. The government has proposed UBS use Common Equity Tier 1 (CET1) capital to meet the requirement.

However, the lawmakers’ group proposed that UBS should be allowed to use so-called Additional Tier 1 (AT1) debt to cover up to 50% of the capitalisation requirement for its foreign units, which would reduce the burden on the bank.

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Lawmakers from the right-wing Swiss People’s Party, the centre-right Liberals (FDP), the Centre Party and the centrist Green-Liberal Party are behind the proposal, according to one of them, Thierry Burkart, a former FDP leader.

Their proposal, seen by Reuters, backs setting capital rules for UBS that are the strictest worldwide overall.

“However, the gap to the regulations of leading financial centres in the EU, UK, USA, and Asia must never be so large as to compromise competitiveness,” the document says, urging a balanced solution.

The plan also floats capping investment banking operations at 30% of risk-weighted assets on the bank’s balance sheet.

UBS said the proposal took a “more constructive direction than the extreme approach” of the government, but argued Switzerland already has the world’s strictest capital rules.

It called for regulations to be “proportionate and internationally aligned”.

The finance ministry said the government had submitted its proposal and would decide how to proceed in due course.

Last week, Reuters reported the government was set to soften part of the new regulations.