Exclusive-Swiss lawmakers consider fresh compromise for UBS capital rules, sources say

By Ariane Luthi

ZURICH, June 9 (Reuters) - Swiss lawmakers are considering a new pitch to soften capital requirements on UBS that, if implemented, could shave billions of dollars off the burden the bank is facing under a draft law submitted by the government, sources told Reuters. 

Draft legislation submitted to parliament in April aims to introduce tougher rules to prevent a repeat of the Credit Suisse meltdown by requiring UBS to fully back its foreign units with Common Equity Tier 1 (CET1) capital. 

UBS, Switzerland's sole remaining global bank since it acquired Credit Suisse after its 2023 collapse, has criticised the proposed regulatory plan as "extreme".

Under new proposals, four people familiar with the discussions said UBS would need to back its foreign subsidiaries with around 70% or 80% of CET1 capital, instead of the government's requirement of 100%.

The sources asked not to be named due to the confidential nature of discussions around the proposals.

Following publication of Reuters' report, shares in UBS rose by 2% in early trading, hitting their highest level since 2008.

Lawmakers earlier floated a separate concession pitch requiring at least 50% CET1 backing, which was also on the table at a marathon hearing last month when top government officials and UBS executives jointly faced parliamentarians in a heated meeting in Bern.

REDUCING UBS'S BURDEN WHILE CLEARING POLITICAL HURDLES

Government efforts to impose tougher capital requirements have weighed on UBS's share price and caused friction between Finance Minister Karin Keller-Sutter and UBS, pitting concerns for Switzerland's financial stability against worries over the bank's competitiveness.

The government estimates its plan would require UBS to raise about $20 billion in additional CET1 capital. 

An 80% CET1 backing requirement, however, would reduce that to roughly $15 billion, analysts have told Reuters, while a 50% CET1 demand could allow UBS to keep operating at current core capital levels. 

While current parliamentary discussions are subject to committee secrecy, UBS CEO Sergio Ermotti suggested last week the bank was likely to at least get a "black eye" from the overhaul.

To support UBS's competitiveness, some lawmakers hope to rely partly on less expensive Additional Tier 1 capital alongside CET1. The government sees AT1 as riskier.

The proposals now under consideration in parliament envisage varying levels of AT1 entering the mix.

Lawmakers could also seek to link a fee UBS must pay for a planned public liquidity backstop - a cash safety net for big banks - to its capital requirements, two of the sources and a third person familiar with discussions said.

The upper house committee currently in charge of the banking bill is widely seen as sympathetic to UBS's argument that costly regulation will hurt its business and the economy.

But many lawmakers will likely want to see stricter regulation of the bank when the legislation moves to parliament for voting later this year, with the outcome substantially dependent on centrist parties and moderates.

A compromise between 50% and 100% CET1 backing of UBS's foreign units could, therefore, emerge from the committee as lawmakers pursue a proposal robust enough to pass a floor vote, two of the sources said.

(Reporting by Ariane LuthiEditing by Dave Graham and Joe Bavier)