Swiss regulator "eases up": UBS Group AG capital requirement may be reduced from 100% to 70%, relieving burden of billions of dollars.

According to reports from foreign media citing informed sources, Swiss legislators are considering a new proposal to relax the capital requirements for UBS Group AG (UBS.US). If the proposal is implemented, the capital burden on UBS Group AG will be reduced by billions of dollars compared to the government's draft. The legislative draft submitted to parliament in April aimed to introduce stricter rules to prevent a repeat of the collapse of Credit Suisse. The draft required UBS Group AG to fully support its overseas subsidiaries with its Common Equity Tier 1 (CET1) capital. Since being acquired after the collapse of Credit Suisse in 2023 and becoming the only global bank in Switzerland, UBS Group AG criticized the regulatory scheme as "too extreme." Four individuals familiar with the discussions revealed that under the new proposal, UBS Group AG would only need to support its overseas subsidiaries with approximately 70% to 80% of CET1 capital, instead of the government's requirement of 100%. As of the time of writing, the stock price of UBS Group AG had risen by 2.28% in pre-market trading. Previously, legislators had proposed another compromise, requiring at least 50% of CET1 support, which was also discussed at a marathon hearing held in Bern last month. At that time, senior government officials and executives from UBS Group AG faced questioning from lawmakers together, and the atmosphere was intense. Easing the burden on UBS Group AG while overcoming political obstacles Government efforts to implement stricter capital requirements have consistently weighed on the stock price of UBS Group AG and caused friction between Finance Minister Karin Keller-Sutter and UBS Group AG - the former is concerned about Swiss financial stability, while the latter is concerned about bank competitiveness. The government estimates that its plan would require UBS Group AG to raise an additional $20 billion in CET1 capital. However, analysts suggest that with an 80% CET1 support requirement, UBS Group AG would need around $15 billion in additional capital, while a 50% requirement could allow UBS Group AG to continue operating at its current core capital levels. Although current parliamentary discussions are restricted by committee confidentiality rules, UBS Group AG CEO Sergio Ermotti hinted last week that the bank is likely to "take some pain" in this regulatory reform. To support the competitiveness of UBS Group AG, some legislators hope to rely to some extent on lower-cost Additional Tier 1 (AT1) capital alongside CET1 to meet requirements. However, the government sees AT1 as higher risk. Proposals being considered by parliament envision different compositions of AT1. Two sources and a third informed individual stated that legislators may also link the costs UBS Group AG pays for a public liquidity support program (a cash safety net for large banks) to its capital requirements. The upper house committee responsible for the banking bill is generally seen as sympathetic to UBS Group AG's arguments - that high regulation will harm its business and the overall economy. However, many legislators may want to see stricter regulations imposed on UBS Group AG when the bill is voted on in parliament later this year, and the final outcome will largely depend on centrist and moderate parties. Therefore, the committee may compromise between a 50% and 100% CET1 support for overseas subsidiaries ratio, proposing a strong enough measure that can pass a full house vote.