FINANCIALS: UBS: Swiss Set To Start Basel 3 Before US, Spread Positive

UBS (UBS: A3 dev/A-/A): statement from Swiss Federal Council indicating Basel III will be in force from 1-Jan-25, clearly not bending to lobbying from UBS (and other Swiss banks) to delay implementation, as looks set to happen in the US. We take this as spread positive for UBS.

• The key here is FRTB (fundamental review of the trading book) which increases the “market risk” element for RWAs in the bank capital calculation. US banks have lobbied hard to slow implementation and, only last week, FN reported US lawmakers as set to delay this into 2026.
• The EU and Swiss regulators have come under pressure from banks to maintain a level playing field and follow the US lead; the EU is yet to act definitively but this Swiss statement, whilst not mentioned FRTB specifically, appears to set Switzerland apart.
• For UBS, we estimate this is only a 2-4% increase in capital requirements and holding this increased capital should be positive and is likely to push risk appetite in UBS’s investment bank lower, in our view. The competitive impacts of any “un-level” playing field are unlikely to be helpful for UBS’s IB but that could even help speed it towards a Morgan Stanley-style business model.
• UBS spreads have already marginally outperformed YTD (-37bp vs. €IG banks -35bp) and this should underpin that performance, in our view.