After experiencing the bankruptcy of Credit Suisse last year, Swiss authorities have proposed a capital reform plan for the banking industry. This will bring considerable pressure to UBS Group, which may face an additional regulatory capital requirement of around $20 billion.
According to insiders, Swiss Finance Minister Karin Keller Sutter has proposed that systemically important banks need to provide most or even full capital support for their overseas subsidiaries.
The person added that, according to analysts and media estimates, these changes may mean a capital loss for UBS between $15 billion and $25 billion.
Under the proposal of the Swiss finance minister, UBS's stock price fell more than 6% in Zurich last week, and closed down another 2.74% on Tuesday (April 16). As of the end of 2023, UBS's common equity Tier 1 capital was $79 billion.
Dealing with future risks
The Swiss Federal Council hopes to set higher requirements for Swiss banks of significant importance in the system, significantly increase the capital of their overseas branches, and at the same time increase the specific capital levels of banks in order to consider future risks more.
These proposals will face a significant increase in capital regulatory requirements for UBS Group. The authorities wrote in a statement last week, "According to current applicable requirements, UBS's parent company must provide 60% capital support to its foreign subsidiaries. The Federal Commission's goal is to significantly increase capital support for (banks)."
Sources have revealed that regardless of the nominal amount, Finance Minister Keller Sutter hopes that UBS's support for foreign subsidiaries will approach 100%.
It is reported that the Swiss government can change the capital system without further parliamentary approval. Government officials have stated that the relevant regulations will be implemented as early as 2026.
Independent research firm Autonomous Research analyst Stef Stalmann believes that additional capital requirements may weaken expectations for banks to repurchase stocks.
UBS executives have publicly expressed opposition to the necessity of increasing capital.
UBS Chairman Colm Kelleher objected in an interview last month, "If you have too much capital, it will be detrimental to shareholders and customers, as banking services have become more expensive. And we already have a capital buffer far above regulatory minimum requirements."