(Jan 12): UBS Group AG said planned Swiss banking reforms are a threat to the national economy as pressure builds on the government to water down the proposals.
If implemented in its current form, the plan to require full equity backing for foreign subsidiaries would “place a heavy burden on the Swiss economy,” the country’s largest lender said on Monday in its formal response to the planned legislation. It would also “jeopardise the continuation of the successful UBS business model,” it said.
Switzerland’s largest bank has been fighting the reform package ever since it was unveiled in June last year as it’s estimated to add as much as US$26 billion (RM106 billion) to UBS’s capital requirements. The plan looks increasingly in doubt after the Swiss parliament’s largest party, SVP, last week backed an alternative proposal circulated in December.
Several Swiss lawmakers last month proposed to allow UBS to use a kind of junior debt known as AT1 bonds to meet as much as half of the new foreign subsidiaries requirement. The move pushed the bank’s share price to a 17-year high on investor bets that it will ultimately pave the way for a softer package.
The bank has estimated that the requirement to provide full equity backing for foreign subsidiaries would lead to about US$23 billion in fresh capital demands.
Last week, the Swiss bank sold US$3 billion of AT1 bonds. This came after a Swiss court revoked a 2023 order to write down about US$17 billion of Credit Suisse AT1 notes as part of its takeover by UBS. The court has yet to decide whether the write-down itself will ultimately be reversed. Banking regulator Finma has challenged the ruling.
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The Swiss Banking Association (SBA) and the Swiss business lobby Economiesuisse on Monday also rejected the government proposals.
The measures “would make doing business abroad more expensive, either directly or indirectly, for all banks in Switzerland,” the SBA said in a statement. They “would be harmful to the entire banking sector, the financial centre as a whole and Switzerland’s real economy.”
The plans “would weaken the only remaining major bank in international competition, restrict the availability of credit, and impair the functioning of the financial and industrial centre,” Economiesuisse said in a separate statement.
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The Swiss government has said the demise — and subsequent purchase by UBS — of Credit Suisse three years ago showed that current banking rules offer insufficient protection against crises and must be toughened. While UBS agrees that regulatory lessons can be learned, it says that the proposed changes are the wrong ones.
The consultation period for the legislation that includes capital backing for foreign subsidiaries ended on Friday. The measure is expected to be discussed in the Swiss parliament next year.
In addition, the Swiss government also plans to downgrade how balance sheet items like software and deferred tax assets can be counted as equity. Those measures, which can be implemented by decree, are estimated to lift UBS’s capital requirements by about US$3 billion.
The government will now assess the feedback it has received on the two proposals. It’s likely to make a decision later this year on the new valuation rules as well as on whether to soften the draft on foreign units backing that it will ultimately submit to parliament.
Uploaded by Evelyn Chan
