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UBS CEO Trying To Deflect Higher Capital Levels

FINANCIALS

UBS (UBS: A3 dev/A-/A) CEO speaking at industry event - headlines appear to be trying to position the bank's view than FINMA should be given greater powers to monitor, control and intervene thereby negating the need for greater capital levels.


*UBS CEO: FINMA SHOULD BE ABLE TO INTERVENE EARLY, DECISIVELY

*UBS CEO ERMOTTI SPEAKS AT EVENT IN LUCERNE, SWITZERLAND


  • The Swiss Federal Council report (10-Apr) pushed for increased capital levels, specifically within overseas subsidiaries. We calculated that every additional 10pp of capital backing (above the current 60%) would imply USD6.5bn of additional capital consumption.
  • Reuters subsequently reported (16-Apr) the hit as USD15-25n in totality, which tallies with our assumptions.
  • UBS’s capital base is USD78.5bn, giving a CET1 ratio of 14.5%. This could, in extremis, drop the CET1 ratio as low as 10% but we would expect a long phase-in period rather than such an extreme step-change.
  • The two effects are that equity distributions are likely to be meaningfully impaired but that credit is better-supported by a stronger base, so a spread positive. UBS spreads have broadly tracked the €IG banks YTD and over the last month.
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