UBS: Swiss Banking Report Should Tighten Spreads, BBG Now Picking Story Up

UBS and capital: commentators coming to our view around reduced equity payouts, should tighten spreads for UBS and CS cash bonds but few moves visible yesterday afternoon. (UBSG SW)

• Bloomberg is speculating that yesterday’s Swiss banking report would “seem likely to postpone or diminish the share buybacks that UBS investors are hoping for” (https://blinks.bloomberg.com/news/stories/SBRF46DW...). UBS has not (yet) commented on the report, we believe.
• As we calculated yesterday, we can see as much as USD39bn of capital within overseas subsidiaries so every 10pp of increased requirement over the 60% UBS is working to currently would be USD6.5bn of capital that can no longer be paid to shareholders in the same way. This would very likely be phased in over a number of years but is an economic negative for equity, nonetheless. The reaction of equity yesterday (-2.7%) indicates this was not the expectation of those investors.
• Conversely that additional capital backing should reduce risk therefore see spreads tighten. UBS AG’s senior 5yr CDS (UBS AG CDS EUR SR 5Y D14 Corp) barely moved yesterday, and the cash bonds (on FICM) for both UBS Group and UBS London were only 1-2bp tighter, broadly tracking senior financials spreads.