UBS dealt blow as Swiss upper house backs tougher 90% capital plan

Swiss Lawmakers Approve Tougher 90% CET1 Capital Plan for UBS

Swiss Parliament Moves Forward with Stricter Capital Requirements

By Ariane Luthi

Upper House Decision and UBS Response

ZURICH, Sept 23 (Reuters) - Switzerland's upper house of parliament dealt a blow to UBS on Wednesday, voting in favour of tougher capital rules that the bank estimates could require it to hold about $18 billion in additional capital.

Lawmakers supported a proposal that would require the Swiss bank to back its foreign units with 90% Common Equity Tier 1 capital, rejecting a proposal favored by UBS to allow the bank to use 50% CET1 capital and 50% Additional Tier 1 (AT1) capital, which is cheaper to hold.

"This political outcome is not a compromise and fails to address the root causes of the Credit Suisse collapse," UBS said in a statement. "As the parliamentary process continues, UBS will focus on protecting its long-term interests."

Background: Credit Suisse Collapse and Government Action

The government is drawing up new banking rules to avoid another crisis following the 2023 collapse of Credit Suisse and had originally proposed making UBS underwrite its foreign units with 100% CET1 capital, a demand that UBS said was excessive.

Finance Minister's Perspective

"Hard equity is the most important lever in any crisis," Finance Minister Karin Keller-Sutter said before the vote, adding that Switzerland could not handle a potential collapse of UBS, whose balance sheet exceeds the Swiss economy.

"That's why we need to set the necessary guidelines," Keller-Sutter told lawmakers.

Next Steps and Market Reaction

The bill now moves to the lower house, with a final decision most likely in 2027. 

UBS shares were slightly up, outperforming the European banking index.

Industry and Political Reactions

"The decision is burdensome for UBS, but apparently no longer a major negative surprise," said Maurizio Porfiri, chief investment officer of Maverix Securities.

UBS CEO Sergio Ermotti on Tuesday characterised a 90% CET1 requirement as a distortion of UBS's competitive position. "We don't think that this is an acceptable outcome," he said.

UBS Chairman Colm Kelleher warned last week that the bank could rethink its Swiss base if capital rules became too harsh.

The left-leaning Social Democrats, meanwhile, have said they could launch a referendum campaign if parliament decides to water down UBS capital rules.

There were 29 votes on Wednesday for the 90% CET1 proposal and 16 for the 50% AT1 option, which Ermotti had backed.

The Swiss Bankers Association said in a statement it was disappointed at the outcome and deeply regretted that critical comments from the business community had not been taken into account. 

(Reporting by Ariane Luthi and Oliver Hirt; Editing by Dave Graham, Alexander Smith and Elaine Hardcastle)