Swiss senators back a 90% capital rule for UBS units; the bank puts the extra cost at about $18 billion

Switzerland's upper house of parliament, the Council of States, voted on Wednesday to require UBS to back its foreign subsidiaries with common equity Tier 1 capital equal to 90% of their value. The bank estimates the rule could require about $18 billion of additional capital, Reuters reported. Senators chose the 90% option over the one UBS preferred, which would have allowed half the backing in cheaper Additional Tier 1 bonds, by 29 votes to 16. The chamber then approved the full package 33 to 10 with two abstentions, blue News reported. The bill now goes to the lower house, the National Council, and a final decision is most likely in 2027.

Tougher or easier? Both

News headlines on the vote pointed in opposite directions. Reuters and Bloomberg called it a setback for UBS. The Wall Street Journal said the upper house backed a plan to ease new capital demands. Both descriptions are accurate, because the outlets were comparing against different starting points:

Compared with the government's 100% plan, the vote is a small concession. Compared with the rules today, it roughly doubles the hard equity behind UBS's foreign units, from about 45% to 90%. For shareholders, the second comparison is the one that matters.

The number behind the $18 billion

According to blue News, UBS's own breakdown is about $16 billion of additional CET1 capital at the parent company from the Council of States' version, plus about $2 billion from separate regulatory changes the government plans. Together that makes about $18 billion. On top of that is roughly $15 billion the bank had already reported as a consequence of the Credit Suisse acquisition, bringing the total to about $33 billion. Reuters cited the $18 billion figure. The two reports do not conflict; they count different pieces.

UBS said the outcome "is not a compromise and fails to address the root causes of the Credit Suisse collapse." Finance Minister Karin Keller-Sutter told lawmakers that "hard equity is the most important lever in any crisis." She pointed out that UBS's balance sheet is larger than the Swiss economy.

Who it hits

UBS shareholders. Capital used to back foreign units cannot be returned to shareholders through buybacks. The bank's chairman, Colm Kelleher, warned last week that UBS could rethink its Swiss base if the rules became too harsh. Zurich trading was calm in the morning: Reuters said the shares edged up, and blue News said they fell about half a percent. The U.S.-listed shares were down 2.7% at $47.85 at 1 p.m. ET, per Nasdaq, on a day when the S&P 500 was also lower.

Swiss businesses. Business group Economiesuisse warned that loans and banking services could become more expensive, including for small and midsize firms. Keller-Sutter rejected that argument because the rule applies to foreign subsidiaries. The Social Democrats said 90% is still too low and have threatened a referendum if parliament waters the rules down.

What to watch next: the National Council debate, which blue News expects in the winter session. For more on banks, see our stocks coverage.

Sources: Reuters via Global Banking & Finance Review; blue News; WSJ and Bloomberg headlines; Nasdaq quote. This is market information, not investment advice.