UBS: Swiss FinMin Indicates USD15-25bn Capital Requirement: Positive For Spreads

Reuters is reporting USD15-25bn of additional capital needs are “plausible” in terms of orders of magnitude, according to Swiss finance minister. This continues to be a credit positive as equity holders appear set to lose out in favour of greater capitalisation, we feel.

• Karin Keller-Sutter is reported to have made the comments following last week’s publication of the long-awaited Swiss banking report into the failure of Credit Suisse. The key aspects covered a senior manager’s regime and, more importantly, a potential requirement to fully capitalise overseas subsidiaries.
• We speculated then that every 10pp move in the 60% overseas subsidiary capitalisation rule, would equate to USD6.5bn of additional capital. The figure quoted with the Swiss minister appears to imply a move to around 100% capital backing across the full CS legacy estate.
• On UBS’s current CET1 base (of USD78.5bn, a ratio of 14.5%) this would consume meaningfully all excess capital and restrict the group’s ability to buyback further equity (mgmt had indicated a USD1bn buyback in 2H24, which would now appear under threat) and grow the dividend. We’d expect a phased implementation, such that this should not drive an equity issue in the near term.