UBS chairman warns bank could rethink Swiss base if rules too harsh

By John Revill and Dave Graham

ST. GALLEN, Switzerland, Sept 17 (Reuters) - UBS would need to consider its future in Switzerland carefully if new banking rules ended up being so strict that it cannot compete, the Swiss bank's chairman said on Thursday.

Colm Kelleher was speaking as the Swiss upper house of parliament postponed until next week a vote on rules being drawn up in response to the 2023 collapse of Credit Suisse.

Kelleher was asked at a banking event in the eastern city of St. Gallen whether UBS could move its headquarters out of Switzerland after reports it might consider such a move if new banking regulation was too stringent.

"Our number one aim is to have a Swiss compromise that allows us to stay in Switzerland, prosper in Switzerland, be of value to the Swiss economy, and for the Swiss economy to benefit from us. It's a very high bar for us," he said.

"However, clearly, if we're in a position where we cannot compete, then we have to think about that," Kelleher said, adding that he hoped parliament would craft a good compromise.

Switzerland's government argues that stricter regulations are needed to strengthen the country's banking sector and protect taxpayers from the risk of another meltdown.

But UBS, which acquired Credit Suisse after its long-time rival foundered, has pushed back against the proposals, and lawmakers have been seeking a compromise.

Under the government plan, UBS would need to hold an extra $20 billion of Common Equity Tier 1 capital, mainly by requiring its foreign units to be backed 100% by CET1 capital. Currently, they have to be at least 60% backed, largely with CET1 capital.

UBS says the 100% requirement is excessive, arguing it would hurt its international competitiveness.

In late August, an upper house committee agreed a compromise stipulating that UBS could back foreign subsidiaries with 50% CET1 capital and 50% Additional Tier 1 capital, which is cheaper to hold.

UBS says that option would cost it $13 billion.

OVERHAUL COSTLIER THAN EXPECTED

Kelleher said that while he was not happy about the extra costs, UBS could live with the committee's AT1 compromise, noting the bank had already put in $15 billion in extra capital since it bought Credit Suisse.

"We will pay more, but it has to be proportionate and internationally aligned," he said, noting the banking overhaul was costing more than he had expected when he agreed the Credit Suisse takeover in 2023.

"When I did the deal ... my understanding was that we would not be in this position," he said. "My shareholders also were under the understanding that we would not be in this position."

The government and Swiss regulators have questioned the viability of the AT1 proposal, and several lawmakers have rallied behind another compromise that would require UBS to back its foreign units with 90% CET1 capital rather than 100%.

That option would be costlier for UBS.

Still, some lawmakers from the centre-right Liberals (FDP), the right-wing Swiss People's Party and the Centre Party spoke in favour of the 90% CET1 option during Thursday's debate, suggesting it may be gaining support in the upper house.

The upper house had been expected to vote on the various proposals on Thursday, but debate ran so long that proceedings were adjourned until next Wednesday.

(Reporting by John Revill, Dave Graham and Oliver Hirt; Editing by Mark Potter and Alexander Smith)