After the CS debacle: the federal government wants to keep a close eye on UBS

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The local banking regulator welcomes the completion of the acquisition: Finma announced on Monday that today’s legal implementation brings clarity and stability to banks, their customers and the financial center. It ends “a phase of great uncertainty”.

The emergency acquisition of CS by UBS with the backing and guarantees of the federal government was announced on March 19. The mega merger of two large banks was therefore completed in just twelve weeks.

Reduce risks as soon as possible

Finma wants to keep a very close eye on the merged and now only, but significantly larger, major bank during the integration. One of the most urgent goals, according to the authority, is to reduce the risks of the investment bank of the former Credit Suisse as quickly as possible.

Due to its sheer size alone, the combined banking giant will have significantly higher capital and liquidity requirements. These buffers, which are used to cover risks in the banking business and absorb any losses, are specifically tailored to individual institutions and are largely based on the size of the balance sheet.

The type of business that the bank conducts is also decisive. In addition, UBS is now one of only four systemically important banks in Switzerland, alongside Raiffeisen, Postfinance and ZKB. And these systemically important banks have higher regulatory requirements than other institutions.

The screw is tightened for all system-relevant banks

With a view to liquidity, Finma intends to define the additional requirements this year. UBS must then meet these requirements from 2024. Stricter liquidity requirements were planned for all systemically important Swiss banks anyway. Payment risks are now also covered by the revised legal basis. The banks will receive the relevant notifications in the third quarter.

It was precisely the lack of liquidity that finally broke the neck of the stumbled Credit Suisse. After a series of setbacks, customers lost confidence and money was withdrawn en masse.

UBS will have a grace period

In fact, higher capital requirements due to the increased size have meanwhile been completely suspended for a period of time. This is legally possible in such a form of acquisition to ensure an orderly reduction of risk. That means: it is already clear today that a large part of the trading activities at CS will be dumped in the investment bank. And that means that the risk will decrease again in the foreseeable future.

However, dismantling should not be rushed, but should be done conscientiously. At the same time, however, UBS would not have to raise temporary capital that it may no longer need after the sale of certain areas. Hence the transition period.

From 2026, UBS must then gradually build up the necessary capital and fully comply with the requirements by early 2030 at the latest. A bank has several options for building up capital, including withholding part of the profit. Please note, UBS has currently suspended share buybacks due to the takeover.

The future of CS Switzerland’s business is still open

The regulator cannot say how high the capital requirement will ultimately be for the combined megabank. Today it is still unclear how many customers were customers of both UBS and CS before the acquisition – ie how many overlaps there are in the assets or the different transactions, and how many other outflows there are.

UBS can only say that gradually now that the transaction has been completed. It is also unclear what will happen to CS Switzerland’s activities. It also depends on how the legal requirements turn out. (SDA)

Source:Blick