UBS, Credit Suisse Face Leverage Cap, Regulator Says
By Elena Logutenkova
Sept. 2 (Bloomberg) -- UBS AG and Credit Suisse Group AG will have to hold more capital in reserve against their assets following subprime-related losses, the head of Switzerland's Federal Banking Commission said.
``We plan to introduce the new rules by the end of the year at the latest,'' Chairman Eugen Haltiner said in an interview at a conference in Zurich today. The commission received the banks' replies to its proposal and is discussing details of the plan, he said. ``We are going ahead with the leverage ratio.''
Switzerland's two largest banks may have to cancel dividends, stop share buybacks, shrink balance sheets and raise fresh capital to satisfy new requirements, analysts including Morgan Stanley's Huw van Steenis have estimated. Credit Suisse has said a leverage cap will make Swiss banks less competitive.
The regulator is in discussions with the banks over which assets should be included in determining the ratio, and whether off-balance-sheet holdings and government bonds should be excluded from the calculations, Haltiner said.
``We are eager to learn the position of the banks,'' he said. ``I can assure you that competitiveness will stay in our mind.''
UBS rose 6 centimes, or 0.3 percent, to 23.98 Swiss francs in Swiss trading, erasing gains of as much as 3.1 percent. Credit Suisse advanced 95 centimes, or 1.9 percent, to 52.4 francs, after rising 4.4 percent earlier. The Bloomberg Europe Banks and Financial Services Index climbed 2.3 percent.
`Low-Capitalized'
The assets of UBS and Credit Suisse exceed the country's annual gross domestic product by seven times. Yet capital at the banks amounted to only about 2.5 percent of their total holdings at the end of last year, down from 7 percent in 1995, the Swiss National Bank said in its annual financial stability report. In the U.S., banks must have capital amounting to at least 5 percent of assets, the central bank said.
The two Swiss banks and German rival Deutsche Bank AG are ``very low-capitalized'' compared with their U.S. peers, Haltiner said. Capital ``at least has to come up to a level that is competitive internationally, which is not yet the case.''
Haltiner declined to say what the new capital requirement may be. The U.K. Financial Services Authority may also be considering tighter capital requirements for banks, he said.
``We had a good dialogue with the FSA and their first reaction was that capital wasn't the first priority because the problems of U.K. banks were on the liquidity side,'' he said. ``In the meantime, the FSA is also reconsidering capital requirements.''
`Made a Mess'
Under current regulations in Switzerland, banks must hold capital that amounts to at least 8 percent of their assets, weighted according to their risk.
Those rules ``made a mess in the end'' because they didn't require capital to be held against top-rated assets, including many securities backed by subprime mortgages, Haltiner said.
Those investments lost value when the U.S. housing market fell into the worst slump since the Great Depression. UBS took more than $43 billion of subprime-related writedowns and had to raise almost $28 billion of capital from investors.
The banking commission doesn't want to ``throw overboard'' current rules, ``but in addition we need a broader screen to follow what is going on the balance sheets of large banks,'' Haltiner said. The commission has said previously that banks will have a transition period to adopt new requirements. |
