Shares of UBS reached the maximum for 17 years in trading on December 12 - on the background of the proposal of Swiss lawmakers to soften future capital requirements. According to analysts, such steps may reduce risks for UBS profitability and signal the readiness of the parliament to seek a compromise on the reform, because of which the country's largest bank was thinking of leaving for the United States.
Details
UBS shares rose almost 5% during trading on Friday and reached the highest level since 2008. The growth rate slowed to 2.5% by the close of the stock exchanges.
The reason for the rally was the initiative of a group of influential Swiss lawmakers who proposed to relax the capital requirements the country plans to impose on the bank, Bloomberg reported. The lawmakers presented recommendations that would allow the bank to use AT1 bonds, which are riskier for holders, instead of equities to provide capital for its overseas units. This could reduce UBS's costs compared to the current option proposed by the government, the agency said.
In addition, lawmakers proposed keeping the ability to use some of the value of software and taxcreditsas capital to meet the requirements, but also included a cap on growth in the investment banking business, Bloomberg reports.
Further action by the Swiss Finance Ministry will largely depend on its understanding of how effective UBS has been in convincing lawmakers to relax the proposed rules, Bloomberg sources said. One possibility, they said, is that the government will relax accounting requirements for some deferred tax assets and software if that helps win lawmakers' support for reform.
A spokesman for the Finance Ministry declined to comment on internal discussions, saying only that the government has made its proposal and will make a decision in due time.
Why it's important.
The initiative of the authorities may mean a way out of the political confrontation around the government's attempts to tighten banking rules, Bloomberg writes. This step may cost UBS up to $26 bln of additional capital. The possible reform has become a factor of serious pressure on UBS shares. The bank warned that it may have to cut payments to shareholders if the new rules come into force.
"So far, the worst-case scenario for UBS has been on the table. But if it becomes clear that it will not materialize, the situation will change significantly," said Vontobel analyst Andreas Venditti. The rise in the stock shows that the MPs' initiative "carries a completely different weight" as it points to a likely future vote in parliament, he added.
"This document is noteworthy because in this context I have yet to see the use of AT1 bonds as a way to mitigate tighter capital requirements," said Morningstar analyst Johann Scholz. While such capital would also create costs for UBS and reduce profitability, the impact would be "incomparably smaller" than under the government's current proposal, he added.
The proposed compromise won't have an immediate effect, as parliament doesn't plan to consider capital reform until 2027 at the earliest. But within the consensus-based Swiss political system, the document has the potential to influence government policy until then, Bloomberg notes.
Context
Swiss authorities explain the need for reform by risk protection considerations: so that the Swiss banking industry would never again pose a serious threat to the country - as it did three years ago during the collapse of Credit Suisse, Bloomberg reports. However, politicians, business representatives and UBS itself warn that such reforms would make Switzerland's largest bank uncompetitive and could damage the country's economy, the agency added.
According to Financial Times sources, UBS was considering moving its headquarters to the U.S. because of stricter regulations in Switzerland. According to the newspaper's interlocutors, UBS chairman Colm Kelleher and U.S. Treasury Department head Scott Bessent privately discussed such a move. Officially, the bank has since said that it plans to continue operating from Switzerland.
This article was AI-translated and verified by a human editor
