The “strictest in history” new capital regulations now have a compromise window, and UBS (UBS.US) stock price soared to the highest point since 2008

The Zhitong Finance App learned that Swiss legislators proposed a compromise plan for UBS Group (UBS.US)'s new capital rules in an attempt to ensure that it remains competitive internationally. This move pushed the bank's stock price to the highest level since 2008. The stock rose more than 1.5% before the market to 43.3 US dollars.

The Swiss government proposed earlier that UBS, which became Switzerland's only global bank after acquiring Credit Suisse on the verge of bankruptcy in 2023, should raise the capital adequacy ratio of its foreign subsidiaries to 100% instead of the current 60% to cover potential overseas losses.

UBS shares rose after the media reported the compromise proposed by a group of lawmakers. Since the eve of its acquisition of Credit Suisse, the bank's stock price has now doubled.

UBS's balance sheet is roughly twice the size of Switzerland's annual economic output, making the government determined to avoid a repeat of the Credit Suisse collapse.

The government's proposal forms a core part of the reform, which UBS said would mean finding $240 billion in additional capital. The government has proposed that UBS use Common Equity Tier 1 Capital (CET1) to meet this requirement. However, a panel of lawmakers proposed that UBS should be allowed to use so-called Additional Tier 1 (AT1) debt to cover up to 50% of its foreign subsidiary capitalization requirements, which would ease the bank's burden.

According to Thierry Burcat, one of the sponsors and former leader of the Liberal Democratic Party (FDP), lawmakers from the right-wing Swiss People's Party, the center-right Liberal Party, the centrist center party, and the centrist Green Liberal Party are behind the proposal.

The proposal supports the establishment of the strictest capital rules for UBS in the world as a whole. “However, the gap between the regulatory requirements of the European Union, the United Kingdom, the US and major Asian financial centers must not be so large as to affect competitiveness,” the document said, and urged a balanced solution.

The plan also proposed limiting investment banking operations to 30% of risk-weighted assets on the bank's balance sheet.

UBS said the proposal was “more constructive than the government's extreme approach,” but at the same time stated that Switzerland already has the strictest capital rules in the world. It called for regulations to be “proportionate and internationally consistent”.

The Ministry of Finance said that the government has submitted its proposal and will decide how to proceed in due course. Last week, the media reported that the government is preparing to soften some of the new regulations.