UBS shares fall as CEO pushes back on Swiss capital rules ahead of vote

UBS Group shares experienced a decline of over 3% on Tuesday following Chief Executive Sergio Ermotti's assertion that a proposal mandating the bank to maintain 90% Common Equity Tier 1 capital for its foreign units, opposed the government's suggested 100%, did not represent a genuine concession. He urged Switzerland to adopt a more measured stance.

The upper chamber of the Swiss parliament was scheduled to deliberate on new capital guidelines tailored for UBS, following the collapse of Credit Suisse in 2023. UBS released a statement outlining its stance as the regulatory discourse escalated, contending that the debate had been marred by conflicting interpretations and incomplete portrayals of pivotal issues.

The bank maintained its support for regulatory modifications that were purposeful, proportionate, internationally synchronized, and tackled the core causes of the Credit Suisse crisis. However, it argued that a 90% CET1 prerequisite would significantly undermine UBS's competitiveness. The document also defended Additional Tier 1 bonds as a recognized tool within Switzerland and globally, capable of being converted into CET1 capital promptly during a crisis, hence functioning as an effective early-response mechanism.

UBS endorsed an alternate proposal from the Council of States' economic committee, referred to as WAK-S, which entailed fortifying AT1 instruments under a 50/50 model. The bank asserted that this model, without a regulatory impediment that would postpone action, would have exposed Credit Suisse's issues as early as 2021, compelling measures like dividend suspensions and bonus reductions.

The bank further argued that more rigorous capital rules would entail broader costs for the Swiss economy, citing that its international subsidiaries, encompassing those in the U.S., support diverse activities that also serve Swiss economic interests. The bank emphasized that its scale reflects the robustness of the Swiss economy and is already incorporated into supplementary regulatory prerequisites.