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UBS has proposed capping the size of its investment bank as it seeks a compromise with Swiss regulators who are considering increasing the bank’s capital requirements after its takeover of Credit Suisse.
The lender has suggested to lawmakers that it could permanently limit the size of the division to reduce risk, according to a person familiar with the matter. The investment bank already has a self-imposed limit of 25 per cent of UBS’s risk-weighted assets.
The proposal comes as UBS seeks to alleviate the concerns of regulators and politicians that the size of the combined group poses a threat to Switzerland’s economy. Officials are pushing for UBS to fully back its foreign subsidiaries, a move that would sharply increase its capital requirements, to protect against a potential future rescue.
However, executives at the bank have argued that the proposed capital reforms would damage its international competitiveness, and have created tensions between the lender and the Swiss establishment.
Sergio Ermotti, UBS’s chief executive, said last week that he “never expected the greatest obstacle to delivering a successful outcome would come from the same authorities who asked us to take on the Credit Suisse challenge”.
Meanwhile, Swiss finance minister Karin Keller-Sutter said the government would not be swayed by the bank’s “intense” lobbying.
“UBS’s lobbying is both visible and unmistakable,” she told local media last week. “The [government] has one goal: that in the event of a crisis, a UBS that is systemically important is resolvable. This means that the systemically 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 curtailed some of its riskier activities, imposed its own limits on the investment bank and rebuilt as a more conservative wealth manager.
Last year, UBS’s investment bank posted pre-tax profits of $1.9bn on revenues of nearly $11bn, while its wealth management business brought in pre-tax profits of $3.9bn on revenues of $24.5bn.
Legislation on the capital rule reforms is set to go before Swiss lawmakers by May. The proposal to cap the investment bank was first reported by Reuters.
UBS said it supported the government’s proposals to strengthen financial stability “in principle”, but added that “adjustments to the regulatory framework should be targeted, proportionate and internationally aligned”.
The bank said it opposed “disproportionate measures” that would add to costs for the bank and its customers, and were incompatible with Switzerland being a competitive financial centre.
“UBS is already one of the best-capitalised banks globally,” it added.
