Implicit state guarantee for UBS is worth billions, study says

ZURICH (Reuters) - Swiss bank UBS effectively benefits from a state guarantee that has reduced its costs by billions, a study from the University of Bern has found.

The study, published on Tuesday, feeds a debate on banking regulation as the parliament considers how to reform the rules in the light of the 2023 collapse of Credit Suisse and its subsequent takeover by UBS, which had long been its rival.

The University of Bern examined Swiss plans to create what is known as a public liquidity backstop (PLB) to protect systemically important banks in the event of a crisis.

It said UBS' status as a lender that is considered too big to fail amounted to a state guarantee and lowered the bank's funding costs in 2022 by at least $2.9 billion.

Asked by Reuters about the report, UBS referred to previous statements by CEO Sergio Ermotti in which he disputed that the bank had such a guarantee.

UBS had the capacity to absorb losses of $200 billion and did not rely on taxpayers to bear risks, Ermotti said in 2024.

The 32-page university study said "a government guarantee for liquidity support, like other too-big-to-fail (TBTF) policies, effectively subsidises non-convertible bond financing for SIBs (systemically important banks)".

This had the effect of "encouraging a leverage-heavy funding model that, when combined with limited liability, distorts the incentives of shareholders and management," it added.

Swiss Finance Minister Karin Keller-Sutter said in April she believed UBS had an implicit state guarantee.

To help fund the PLB, the government said in 2023 a fee in the range of 70 million-210 million ($77 million-$232 million) Swiss francs would have been appropriate for its five SIBs in 2022.

UBS's takeover of Credit Suisse was engineered with the support of Swiss authorities. It created a bank with a balance sheet far bigger than the Swiss economy and sparked calls for tougher regulation of the combined institution.

(Reporting by Ariane Luthi and Oliver Hirt, Editing by Dave Graham and Barbara Lewis)