UBS AGM Comments Pushing Back On Swiss Reforms

UBS chairman comments at AGM "seriously concerned" over Swiss capital reforms. Hardly a surprise but we continue to see Swiss regulatory pressure as spread positive for the issuer.

• The Swiss Federal Council published its report on banking stability on 10-Apr which had specific references to improving capital backing of overseas subsidiaries of the old CS group. We estimated every 10pp of capital backing (from current 60%) would be USD6.5bn of additional capital consumption.
• Our view was that UBS did not need an equity raise but this would meaningfully impact equity payouts over the coming years. We see a phased-in approach over a number of years. Reuters (on 16-Apr) reported USD15-25bn of additional capital needs, which tallied with our figures.
• We’ve never heard a bank mgmt be particularly complimentary about regulators demanding increased capital levels and this is no different. His comments around UBS not being “too big to fail” are particularly unusual when the group’s balance sheet is slightly over double Swiss GDP (USD1.7trn total assets vs. GDP c.USD0.8trn).
• The equity took quite a hit in the sessions ensuing (it’s down c.8% this month, SX7P +2%). UBS spreads are around 3bp tighter in the last month (€IG banks -5bp) and we’d see these as well underpinned by this Swiss news.