UBS reportedly faces $20B capital hit under proposed Swiss reforms

investmentnews.com:

UBS Group faces an increase in regulatory capital requirements that could reach around $20 billion under reforms proposed in the wake of the collapse of Credit Suisse.

Swiss Finance Minister Karin Keller-Sutter is aiming for systematically important lenders to have full capital backing against their foreign units, according to a person familiar with the matter. For UBS, the changes would likely translate into a capital hit in the middle of the $15 billion to $25 billion range that analysts and media have estimated, the person said, asking not to be identified discussing internal deliberations.

UBS shares fell as much as 4% in Zurich, having dropped more than 6% last week as investors digested the proposals. A spokesperson for UBS — which reported common equity tier 1 capital of $79 billion at the end of 2023 — declined to comment. 

The Federal Council wants systemically important Swiss banks to hold significantly more capital against their foreign units, while bank-specific capital levels should be boosted to take future risks more into account. The proposals would see UBS face a “substantial” increase in regulatory capital requirements, the government said last week. 

“Under the currently applicable requirements, the UBS parent bank must provide 60% capital backing for participations in a foreign subsidiary,” the government said when it unveiled its proposal. “The Federal Council is aiming for a significant increase in this capital backing,” leading to a substantial increase in overall requirements, it said.

Swiss newspaper Handelszeitung has reported the possibility of a $25 billion hit while Autonomous Research analyst Stef Stalmann has said that additional capital requirements in the $10 billion to $15 billion range