Swiss upper house vote deals blow to UBS by backing 90% CET1 capital plan

Switzerland's upper house of parliament dealt a ‌blow ​to UBS on Wednesday by voting in favour of capital rules that would require the Swiss bank to back its foreign units with 90% Common Equity Tier 1 ‌capital.

The government has drawn up new banking rules to avoid another banking crisis after the 2023 collapse of Credit Suisse. UBS Chairman Colm Kelleher warned last week that the bank could rethink its Swiss base if capital rules became too harsh.

"Hard equity ‌is the most important lever in any crisis," Finance Minister Karin Keller-Sutter said before the vote, adding that Switzerland could ‌not handle a potential collapse of UBS, whose balance sheet exceeds the Swiss economy. "That's why we need to set the necessary guidelines," Keller-Sutter told lawmakers.

The capital rules bill will now move to Switzerland's lower house, with a final decision expected at the end of this year at the earliest, and ⁠more ​likely in 2027. UBS shares were ⁠up 0.9% at 0917 GMT following the upper house decision on the 90% CET1 rule, which CEO Sergio Ermotti said on Tuesday would lower UBS's ⁠additional capital bill by $4 billion compared to the government's 100% proposal.

This would result in around $18 billion of required extra CET1 capital under the ​entire regulatory overhaul, based on the bank's calculations. The government had originally proposed making UBS back its foreign units with ⁠100% CET1 capital, a demand that UBS said was excessive and likely to make it less competitive.

The upper house narrowly rejected the plan before ⁠backing the ​90% CET1 capital option over a more moderate proposal agreed last month by an upper house committee to allow UBS to back foreign units with 50% CET1 capital and 50% Additional Tier 1 (AT1) capital, which is cheaper to ⁠hold. There were 29 votes on Wednesday for the 90% CET1 proposal and 16 for the 50% AT1 option.

Ermotti had said ⁠on Tuesday the 90% ⁠CET1 plan was no real compromise and urged support for the AT1 option. In Monday's edition of the Neue Zuercher Zeitung newspaper, Ermotti said excessive capital requirements would end up being borne not ‌just by shareholders ‌but also customers and employees.