UBS, Credit Suisse hit by stricter capital rules threat

Reuters

By Laura Noonan and Oliver Hirt

ZURICH/LONDON (Reuters) - UBS (VTX:UBSN) and Credit Suisse (VTX:CSGN) would have to hold far more capital than international rivals if Swiss lawmakers push ahead with proposals to impose even tougher rules to curb borrowing on the country's banks.

The potential move is another attempt by lawmakers to force Swiss lenders to go beyond the global standards brought in to avoid a repeat of the 2008 financial crisis, a gold-plated approach bankers have dubbed the "Swiss finish".

A spokesman for Swiss Finance Minister Eveline Widmer-Schlumpf on Monday confirmed her comments in a newspaper that Swiss banks should be subject to a leverage ratio of 6-10 percent, against the 3 percent for global banks under rules that come into force in 2018.

But he said no proposals have been drafted. UBS and Credit Suisse, the country's two largest banks that form the backbone of a financial services industry accounting for 6 percent of the economy, declined to comment.

The Swiss regulator already requires the country's banks to hold 4.2 to 4.3 francs of equity, more than the global standard, by 2019.

Analysts and bankers warned on Monday that if Switzerland's biggest banks had to meet a higher leverage ratio they could be forced to scale back their activities in important markets like bond trading, putting them at a competitive disadvantage.

Widmer-Schlumpf's impromptu comments come five years after the government bailed out UBS during the financial crisis. In July, the bank said it will cut the final tie to that rescue and buy back a fund set up to purge toxic assets, which has since turned profitable.

LAWMAKERS GRUMBLE

The Swiss government made a 1.2 billion Swiss franc ($1.3 billion) profit on the bailout in 2009, but politicians and small shareholders have continued to grumble. Lawmakers from both ends of the political spectrum recently united with measures aimed at curbing UBS and Credit Suisse and restricting their risk-taking.

In September, the right-wing Swiss People's Party (SVP) and the left-wing Social Democrats (SP) launched proposals to demand higher leverage ratios, though these have failed to attract much support until now. Any laws enacted would take years to come into force.

The Swiss financial regulator is also demanding that UBS holds extra capital in case it has to pay out more than expected in legal settlements.

The calls from politicians come as UBS and Credit Suisse outline how they will comply with the too-big-to-fail law that started to come into force last year, which aims to limit the fallout from any future crises in Switzerland.

Last week, UBS said it would set up a new Swiss subsidiary by mid-2015 as a lifeboat for its Swiss retail and small business banking activities and some of its private bank in the event of another crisis.

Shares in UBS were down 4.8 percent and Credit Suisse was down 5.6 percent at 1511 GMT, underperforming a slightly higher Stoxx 600 European bank index (.SX7P).

"Over time any such potential move could lead to further shrinkage of the FICC (fixed income, currencies and commodities) division for the Swiss investment banks, especially at Credit Suisse Group," J.P.Morgan Cazenove analysts said.

TOUGHER LINE

Other countries including the U.S. and the Netherlands are also taking a tougher line over banking regulation. In June this year, Britain told its banks to speed up their progress towards a 3 percent leverage ratio, though stopped short of setting a new deadline.

"We do seem to be seeing a lot of national initiatives and a break away from the global Basel consensus, although Basel has always been intended as a ‘minimum standard' not a 'maximum standard'," said Steven Hall, a London-based partner at KPMG's risk consulting practice.

(Additional reporting by Katharina Bart and Silke Koltrowitz in Zurich; Editing by Erica Billingham)

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