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UBS Group Expects Regulatory Costs to Stay High in Near Term

Zacks Equity Research

UBS Group AG’s UBS chief compliance and governance officer Markus Ronner is of the opinion that the regulatory costs will remain elevated over the coming years on account of changes in financial rules. The news was reported by Reuters.

Post 2008 financial crisis, banks across the world faced strict regulatory requirements, which resulted in higher related expenses.

The article stated that in the past five years (ended 2018), UBS Group incurred about CHF3.5 billion in order to meet new regulatory requirements that were introduced. Also, of the total amount, CHF1.5 billion was spent to restructure its corporate legal structure to wind down parts of its business that it considered unprofitable.

Further, costs included those spent to comply with MiFID II, which took effect in January 2018 as a revamped version of MiFID (introduced in 2007) — a set of European financial rules designed to protect investors and regulate financial instruments.

Notably, in April 2019, the Federal Reserve proposed a new liquidity rule that would be binding on foreign banks operating in the United States. These banks were sorted into four categories based on their perceived riskiness. 

UBS Group was included in the third category alongside HSBC Holding HSBC and Royal Bank of Canada RY, which means they have to go through routine stress testing and meet liquidity demands similar to the U.S. major banks.

UBS Group and Credit Suisse CS came under the purview of such liquidity rules for the first time.

Though strict regulatory requirements lead to elevated costs, these help ensure a fair regulatory system while maintaining the economic stability earned so far, and safeguarding against another downturn.

UBS Group remains focused on building capital levels, global expansion and executing restructuring initiatives. Also, its cost saving plans will aid bottom-line growth.

The stock has lost 3.8% so far this year against 5% growth of the industry it belongs to.

Currently, UBS Group carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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