UBS would be seriously weakened if Swiss imposed ’extreme’ capital demands, its compliance chief says

ZURICH, Feb 6 (Reuters) – UBS would be seriously weakened and forced to consider its strategy if Swiss rules required it to hold 25 billion Swiss francs ($27.69 billion) more in additional capital, its Chief Compliance and Governance Officer Markus Ronner said.

The Swiss government is considering stricter capital requirements for big banks in the wake of the 2023 crisis, which saw the collapse of Credit Suisse and its takeover by UBS.

UBS has been lobbying against higher capital requirements, saying they would harm the Swiss economy, the country’s financial industry and damage the bank itself.

Executive board member Ronner said UBS was already one of world’s best capitalised banks and has had to hold $17 billion to $19 billion more in capital due to the Credit Suisse takeover.

“If another 25 billion were added, we would be talking about over 40 billion more capital,” Ronner told Swiss news website Finews in an interview published on Thursday.

“Equity capital is relatively expensive. You can expect costs of around 10%, i.e. 1 billion francs in additional annual costs for every 10 billion francs of capital,” he said.

This “extreme requirement” would mean UBS would have to hold 17% to 19% of hard equity, he said.

“That is around 50% more than under current Swiss regulations and also much more when compared to the requirements of international competitors,” Ronner added.

“No one can seriously argue that this would not massively weaken competitiveness and call into question the continuation of our strategy and the sustainably profitable business model”.

UBS would also lose appeal to investors and customers, while higher costs would mean a significant drop in profit, he added.

The banking regulation debate should instead focus on better governance and interventions by the authorities, Ronner said.

“I am also convinced that a massive surplus of capital, such as would be generated by extreme demands, would suggest a false sense of security and possibly even mislead the bank’s bodies and the authorities into missing a consistent, timely intervention,” Ronner was reported as saying. ($1 = 0.9029 Swiss francs) (Reporting by John Revill; Editing by Alexander Smith)