UBS Warns Council of State Decision Will Over-Tighten Swiss Capital Rules
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UBS has stated that the Council of State's recent decision, if finalized through the ongoing parliamentary process, would lead to an excessively severe tightening of Swiss capital requirements. This development compounds the roughly USD 2bn in additional CET1 capital already demanded from UBS AG due to ordinance-level measures unveiled earlier this year. According to UBS, the proposed 90% framework is heavily burdensome and lacks compromise. The regulatory adjustments introduced earlier this year are projected to erase approximately USD 4bn in group-consolidated CET1 capital, while total annual expenses stemming from the acquisition will reach around USD 2.5bn. Furthermore, the mandate to back foreign participations with 90% CET1 capital would obligate UBS AG to maintain an estimated USD 16bn in extra CET1 capital.
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UBS stated that if the Swiss Federal Council's tighter capital regulations are finalized, it will need approximately $16 billion in additional CET1 capital, resulting in excessive regulatory tightening. This comes on top of measures announced earlier this year that wiped out $4.0 billion in group-level CET1 capital and resulted in annual acquisition-related costs of about $2.5 billion, making this regulation a heavy burden. Investors should be wary that the burden of additional capital raising could lead to deteriorating profitability.
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- Banking — Stricter capital regulations by the Swiss parliament require UBS AG to hold about $16 billion in additional CET1 capital, which directly leads to lower capital efficiency and increased costs.
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Switzerland's 90% capital accumulation plan sharply reduces UBS's capital efficiency, acting as downward pressure on Return on Equity (ROE) and stock prices. Coupled with the already incurred $2.0 billion in additional CET1 requirements, dividend and share buyback capacities are likely to be reduced.
The key monitoring indicators are whether it will be finalized in future parliamentary procedures and the possibility of regulatory easing. If passed as originally proposed, a bearish scenario where additional capital-raising costs weigh down the stock price is likely.
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