UBS Investment Bank Cap Is Up to Them, Keller-Sutter Says

(Bloomberg) — Swiss Finance Minister Karin Keller-Sutter gave a cold shoulder to UBS Group AG’s offer of a permanent cap on the size of its investment bank, suggesting it won’t do much to change her mind on future capital requirements.

Any such move would be a “business decision” by UBS, Keller-Sutter said in a Bloomberg TV interview in Warsaw on Friday, on the sidelines of an EU meeting. “This is not a political decision.”

UBS has privately suggested that a cap on the bank’s investment banking division be written into Swiss law, Bloomberg News has reported. The chief executive officer of the financial watchdog Finma, Stefan Walter, subsequently confirmed the offer and said he welcomes it. 

The proposal indicated a way forward from the disagreement between UBS and the Swiss government including Keller-Sutter over the country’s plans to increase the capital demands on its biggest lender by as much as $25 billion. 

The authorities’ intention is to increase UBS’s resilience after it agreed to take over Credit Suisse two years ago, making it even bigger. An expanded capital cushion may reduce the risk that UBS will ever face an existential crisis, which could plunge Switzerland into financial chaos.

However, UBS has been campaigning hard against the idea, saying it would reduce its competitiveness and may crimp investor payouts. The lender has been so frustrated it has even examined the potential relocation of its headquarters, Bloomberg News has reported, in a move that would sever a link seen as an important part of its corporate identity. 

One argument made by UBS is that the fresh capital requirements, which include higher demands for foreign subsidiaries, wouldn’t address the root causes of the Credit Suisse collapse. It has pinned that largely on management incompetence at the former bank. 

Keller-Sutter seemed to respond to those arguments in the interview on Friday. 

“We have really learned our lessons from the failure of Credit Suisse and there have been many analyses of the causes of the failure,” she said. “Of course it was mismanagement but it was also a lack of capital, and especially a lack of capital of the subsidiary abroad.” 

“This is what we are addressing,” she said.

The Swiss government is due to present a set of proposals in June that will address how much capital UBS should hold, including in its foreign subsidiaries. The matter will then be taken up by the Swiss parliament, with a conclusion unlikely before 2028.

–With assistance from Arno Schütze, Max Ramsay and Zoe Schneeweiss.

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