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UBS is proposing to limit the size of investment banks as it seeks to compromise with Swiss regulators considering increasing the bank’s capital requirements after the acquisition of Credit Swiss.
Lenders have suggested lawmakers that department size could be permanently limited to reduce risk, according to those familiar with the issue. Investment banks already have a self-imposed limit of 25% of UBS’s risk-weighted assets.
The proposal is that the size of the combined group poses a threat to the Swiss economy as UBS seeks to alleviate concerns from regulators and politicians. Authorities are asking UBS to back up its foreign subsidiary completely. This is a move to significantly increase capital requirements to prevent potential rescues in the future.
However, bank executives argue that the proposed capital reforms undermined international competitiveness, creating tensions between lenders and Swiss facilities.
“The biggest obstacle to delivering successful results will come from the same authorities who asked to take on the Credit Suisse Challenge,” UBS CEO Sergio Hermotti said last week.
Meanwhile, Switzerland Finance Minister Karin Keller Sutter said the government would not shake up the bank’s “stimulating” lobbying efforts.
“UBS’s lobbying is visible and unmistakable,” she told local media last week. “(Government) has one goal: Systematically important UBS is resolved in the event of a crisis. This means that systematically important parts of the bank can be separated in Switzerland.”
After UBS was bailed out by the Swiss state during the 2008 financial crisis, it cut down some of its high-risk activities, imposing its own restrictions on investment banks, and was rebuilt as a more conservative wealth manager.
Last year, UBS’ investment banks recorded pre-tax profit of $1.9 billion with pre-tax profit of nearly $11 billion, while its asset management business delivered $24.5 billion in revenue and $3.9 billion in pre-tax profit.
The Capital Rules Reform Act is expected to go before Swiss lawmakers by May. The proposal to refrain from investment banks was first reported by Reuters.
UBS supported the government’s proposal to “in principle” to enhance financial stability, but added that “adjusting regulatory frameworks should be targeted, proportional and internationally aligned.”
The bank opposed “unbalanced measures” that increased costs for banks and their customers, saying it was incompatible with Switzerland being a competitive financial centre.
“UBS is already one of the most capable banks in the world,” he added.
