Written by Stefania Spezati and Oliver Hurt
ZURICH (Reuters) – UBS is pressing the Swiss government to clarify how much capital the bank will need to retain capital after buying Credit Suisse, sources familiar with the matter said, amid fears that talks could drag on for several months, worrying investors.
Some of the bank’s senior executives were encouraged by the “too big to fail” proposals published by the government in April in response to the collapse of Credit Suisse, which they saw as surprisingly moderate and flexible, the sources said.
But they said concerns had since been heightened by signals from Stefan Walter, the new head of Swiss regulator FINMA, that he wanted UBS to hold more capital.
They are also concerned that the government has not made clear whether the additional capital of between $15 billion and $25 billion that the finance minister said in April that UBS might need is on top of the $19 billion it has already pledged to hold. To reflect its increasing size, the people said. .
The bank recently detailed its view to the government, with UBS Vice President Lukas Gaywiller, who served with Finance Minister Karin Keller-Sutter on the board of a Swiss association, another person playing a key role in lobbying efforts to limit capital requirements. He said.
“There is clearly a need for clarification,” said Hans Gersbach, professor of macroeconomics at the Swiss Economic Institute KOF at ETH Zurich. “Investors need to know if there is another $25 billion that UBS needs to find, and in what time frame.”
Representatives for UBS and the Swiss government declined to comment. A FINMA spokesman said it was important to ensure the flexibility of supervised banks and that it supported government proposals, including on capital.
The capital proposals are at the heart of Switzerland’s efforts to build a more resilient financial system after the dramatic collapse of Credit Suisse shook confidence in its reputation for stability.
The Financial Stability Board, an international body that monitors the global financial system, said this year that Switzerland should strengthen its banking controls.
UBS executives believe more demands could put it at a competitive disadvantage compared with peers in the United States and Europe. Chief Executive Sergio Ermotti criticized calls for more regulation, saying it risked undermining Swiss banking.
Analysts say the tougher requirements could force UBS to shed more assets to generate capital, and could impact its plans to return cash to shareholders.
During a call to discuss UBS’s first-quarter results, analysts asked Ermotti whether exiting some markets could be a solution to free up resources.
The year-long rally in UBS shares has faded since the draft rules were unveiled, with the stock down more than 3% since then versus a roughly 2% rise among peers. Two major investors in UBS this year have cited concerns that the bank may be on a collision course with regulators over its size.
“Full capitalization”
Switzerland’s new rules are likely to come into force in late 2025 or early 2026. The Federal Council is expected to publish draft measures in early 2025, with a consultation period of up to six months after that.
FINMA’s Walter said in May that he supports the “full capitalization” of the bank’s subsidiaries, which a source familiar with the matter said would likely mean UBS needs more capital on top of the $19 billion it is preparing to hold.
If UBS presents a sound plan to break up the bank in the event of a crisis, and if other too-big-to-fail rules are approved to strengthen the regulator’s powers, FINMA — whose views the government takes into account when approving rules — could require less capital, the person said. .
A FINMA spokesman said the regulator should be able to impose additional capital requirements if it detects potential problems with how supervised companies are managed.
The risks of increased capital demand come at a sensitive time for UBS. The bank said in its first-quarter results that new liquidity rules were implemented earlier this year, forcing the bank to set aside more liquidity in the event of stress.
The lender is also dealing with the huge task of migrating Credit Suisse clients. Any delay in integration could erode planned cost savings, Ermotti told Reuters last month.
