Swiss Politics Shift Toward Softer Capital Rules for UBS

Source: Coindoo Original Title: Swiss Politics Shift Toward Softer Capital Rules for UBS Original Link:

A long-simmering clash between Swiss politicians and the country’s biggest bank may be edging toward a truce.

Momentum is building in Bern around a softer approach to strengthening UBS Group’s capital base, one that would rely less on costly equity and more on flexible debt instruments.

Key Takeaways

• Switzerland’s largest party is backing a compromise that would let UBS use AT1 bonds to meet new capital rules.
• The approach could sharply reduce the need for a large equity capital increase after the Credit Suisse takeover.
• Final decisions are still pending, but political momentum is shifting toward a more UBS-friendly outcome.

The turning point comes from an unexpected place: Switzerland’s largest political force. The Swiss People’s Party (SVP), which holds roughly a third of seats in the lower house, has signaled support for a framework that would allow UBS to meet part of its future capital buffer using additional tier-one (AT1) bonds. That endorsement sharply improves the odds that lawmakers settle on a compromise rather than force the bank into a massive capital raise.

From Hard Line to Middle Ground

Until now, the government’s proposal pointed to a capital increase of around $26 billion, a direct response to UBS’s emergency takeover of Credit Suisse in 2023. The collapse of Credit Suisse triggered a regulatory rethink aimed at ensuring no institution could again threaten Switzerland’s financial stability.

UBS has pushed back hard, warning that such a requirement would make it less competitive against global peers. The AT1-based proposal changes the equation. Because AT1 bonds are cheaper than common equity, allowing their use for up to half of the additional buffer would significantly reduce the burden on the bank’s balance sheet.

Markets liked the idea immediately. When the proposal first surfaced late last year, UBS shares surged to levels not seen in nearly two decades. The SVP’s backing now adds political weight to what had previously been just a parliamentary concept.

Support Grows, Uncertainty Remains

The SVP’s position will be formally submitted as part of Switzerland’s consultation process, where parties and stakeholders weigh in on draft legislation. While not every lawmaker is obliged to follow the party line, its support makes it increasingly difficult for the government to ignore the compromise.

At the same time, the debate remains far from settled. Alongside backing the AT1 route, the SVP has also called for a formal assessment of whether UBS should eventually be broken up, including a potential sale of its US operations. That idea has been championed in the past by influential party figures, and its return underscores how deep concerns about UBS’s size still run.

What Comes Next for UBS

The finance ministry will now compile feedback from the consultation and advise the government on whether to amend its draft rules. A revised proposal is expected to go before parliament in the first half of the year. Even then, the process is not airtight: Swiss law allows for challenges via referendum.

For UBS, however, the direction of travel matters. Growing political acceptance of AT1 bonds as part of the solution suggests the final outcome could be far less punitive than originally feared. If that path holds, UBS may be able to move beyond the Credit Suisse fallout without a dilutive equity raise, closing a contentious chapter in Swiss banking policy.