Swiss parliamentary committee passes UBS capital concessions

By Ariane Luthi

BERN, Aug 31 (Reuters) - Swiss lawmakers said on Monday UBS should back its foreign subsidiaries with 50% in Common Equity Tier 1 capital, the highest quality form of bank capital, in a setback for the government, which has sought 100% CET1 backing.  

UBS should be allowed to use cheaper Additional Tier 1 capital to make up the other 50% to achieve full capitalisation of its units abroad, said the economic affairs and taxation committee of the upper house of parliament, looking into banking regulations in the wake of  the collapse of Credit Suisse.

"This is not a victory for UBS, it's a solution that serves Switzerland," said Committee President Erich Ettlin, a lawmaker with the Centre Party.

Under the committee's proposal, UBS should be able to roughly keep its current CET1 capital level, but the bank would need to hold more AT1 capital, Ettlin said.

AT1 debt is cheaper to hold than CET1 capital and is designed to absorb losses during times of stress, but regulators regard it as less secure.

To strengthen the instrument, the committee proposes to introduce an additional trigger at a level of around 11% CET1 capital ratio.

If the bank falls below that threshold, UBS would have to suspend payouts to investors as well as share buybacks. Bonus payments would need to be reduced unless the bank rebuilds its capital base within a certain time.

The modifications would make AT1 capital more costly for the bank, Ettlin said.

FINANCIAL STABILITY VS COMPETITIVENESS

Lawmakers have tried to balance protecting taxpayers from a future banking crisis against the bank's concerns that tougher capital requirements could undermine its competitiveness, considering several less costly compromise proposals.

The Swiss government wants UBS to hold about $20 billion in additional Common Equity Tier 1 capital to bolster financial stability after its emergency takeover of Credit Suisse in 2023.

But UBS has argued the requirement is excessive, would undermine its competitiveness and damage Switzerland's banking sector.

The proposals for new banking regulations, which were passed by the committee by 10 votes to two, with one abstention, now have to be voted on in the upper house before being examined by the lower house committee and chamber, where UBS could face a tougher reception.

At the earliest the final decision on the capital requirements could be reached at the end of this year, but it would be more likely in 2027, Ettlin said.

(Reporting by Ariane Luthi, writing by John RevillEditing by Tomasz Janowski and Sanjeev Miglani)