UBS Rises 3% as Swiss Lawmakers Signal Capital Rule Compromise

UBS may see relief from a proposed $22 billion capital increase as key Swiss lawmakers privately signal a willingness to soften controversial "too big to fail" reforms.

UBS Group AG shares climbed over 3 percent after a report that senior Swiss lawmakers privately assured the bank they would seek a compromise on stringent new capital rules that could add over $22 billion to its requirements. The move suggests a potential de-escalation in the conflict between the nation's sole global bank and its regulators.

A core group of parliamentarians from various parties told UBS executives they would "solve the problem by agreeing on a compromise," the Financial Times reported, citing people familiar with the matter. The assurances come ahead of a formal government decision on the package, which could be published as soon as this month.

The bank’s shares rose on the news, providing a bright spot in a difficult year where the stock remains down nearly 18 percent. The proposed regulations, a direct response to the government-brokered takeover of collapsed rival Credit Suisse in 2023, have been a significant overhang for investors, creating uncertainty about future returns and capital deployment.

At stake is whether Switzerland’s only remaining global bank will face what it deems a crippling competitive disadvantage. The rules could force it to hold billions more in capital against its international operations than peers in the U.S. and U.K., and have led the bank to privately warn it could consider relocating its headquarters if a compromise isn't reached.

A Two-Part Regulatory Overhaul

The "too big to fail" (TBTF) reform package, presented last year by Swiss finance minister Karin Keller-Sutter, has two primary components. The first involves executive regulation changes focused on the quality of UBS's capital. These measures tighten the treatment of deferred tax assets and in-house software, which analysts at the FT estimate could add between $2 billion and $3 billion to core capital requirements, with a broader impact potentially reaching $11 billion by restricting the types of capital UBS can count. This part does not require parliamentary approval.

The second, and far more contentious, proposal would require UBS to hold substantially more capital against its international operations. This measure is designed to ensure foreign subsidiaries can be stabilized independently in a crisis without relying on the Swiss parent company. This is the part of the legislation that lawmakers have greater scope to influence and is estimated to carry a capital impact of around $22 billion.

Lawmakers Signal Flexibility

UBS executives, including Chairman Colm Kelleher and CEO Sergio Ermotti, have grown frustrated with what they see as the government's unwillingness to negotiate directly. They have publicly warned of the damage to Switzerland's competitiveness and the risk of creating a regulatory penalty for the bank.

The private assurances from lawmakers indicate this message is resonating. The process is expected to move to the National Council’s Committee for Economic Affairs and Taxation in May, giving parliamentarians more direct control. "From that point, we will have greater decision-making power," one person reportedly told the FT, with a full parliamentary debate likely to begin in June.

While the finance ministry had previously rejected a compromise proposal last November, the latest developments suggest a path toward watering down the most stringent elements of the package is now open. However, a source close to the bank cautioned the FT that "even if assurances are made, there is no guarantee that the final outcome will be acceptable."

This article is for informational purposes only and does not constitute investment advice.