In a giant setback for UBS and its CEO Sergio Ermotti, Switzerland’s upper house of parliament on Wednesday voted in favour of capital rules that would require the Swiss bank to back its foreign units with 90% Common Equity Tier 1 capital.
The voting result also gives the Guy Parmelin government a big win, with the latter taking a lead role in drawing up new banking rules to avoid another banking crisis after the 2023 collapse of Credit Suisse.
Both Ermotti and UBS Chairman Colm Kelleher raised their opposition against the move, stating that any such government action would force the bank to rethink its Swiss base.
“Hard equity is the most important lever in any crisis,” Finance Minister Karin Keller-Sutter, a vocal supporter of the legislation, 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 2026 at the earliest or, more likely, in 2027.
Speaking on the 90% CET1 rule, Ermotti said on Tuesday that the mandate would lower UBS’s additional capital bill by USD 4 billion compared to the government’s 100% proposal.
“This would result in around USD 18 billion of required extra CET1 capital under the entire regulatory overhaul, based on the bank’s calculations,” he stated further.
The Parmelin 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.
There was another moderate proposal that was agreed in August 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.
The 90% CET1 proposal secured 29 votes, whereas the 50% AT1 option, preferred by UBS and Ermotti, got 16.