90% CET1 becomes the trigger! UBS Group AG (UBS.US) may leave due to new capital rules, and the Swiss parliament faces the dilemma of "rules too strict drive away major banks, too loose lead to a referendum"

Title context: 90% CET1 becomes the trigger! UBS Group AG (UBS.US) may leave due to new capital rules, and the Swiss parliament faces the dilemma of "rules too strict drive away major banks, too loose lead to a referendum" Text: After the collapse of Credit Suisse in 2023, Swiss lawmakers are drafting new capital regulatory rules for UBS Group AG (UBS.US), but this has also put them in a dilemma: if the standards are set too strict, they may force Switzerland's largest bank to move its headquarters out of the country; if the standards are set too loose, they may trigger a referendum and further fuel uncertainty. Switzerland's Council of States (upper house) passed the banking-related bill last month, and UBS Group AG management has said outright that the bill's provisions are unacceptable. A committee of the National Council (lower house) will begin reviewing this set of banking regulatory legislation on October 26. At present, the possibility of a significant relaxation of regulation appears minimal. According to sources, major investors have already urged UBS Group AG to leave Switzerland in search of a more friendly regulatory environment, and UBS Group AG is also drafting potential contingency plans, including relocating its headquarters or merging with another bank. On the other hand, this Zurich-based wealth management giant may be unwilling to bear the high cost of leaving its home country, nor to lose its Swiss identity. Leo Mller, a Center Party lawmaker on the committee, said parliament is in a tricky position. He pointed out: "If we relax the standards too much, we will trigger a referendum. The public may think regulation is insufficient, reject the bill, and end up with nothing. And if the standards are too strict, the bank will say: Switzerland's business environment has deteriorated, and we will look elsewhere." All parties have begun discussing compromise solutions, with some lawmakers trying to soften the bill's requirements, but the consensus across the political spectrum is that significantly loosening the proposal will not be easy. Shadow of a referendum It is understood that the Council of States' plan requires UBS Group AG to back its overseas subsidiaries with 90% Common Equity Tier 1 (CET1) capital. The current buffer standard is 60%, and part of it can be met with lower-cost capital instruments. The Swiss government's initial proposal was a requirement as high as 100% CET1. UBS Group AG has repeatedly stated that it wants to stay rooted in Switzerland, saying that remaining in its home country benefits both the bank and the country. But the bank believes that the 90% CET1 requirement is too high and will severely damage its competitiveness. According to people familiar with the matter, Finance Minister Karin Keller-Sutter has hinted that the bill risks facing a referendum challenge (a referendum can be launched once the legally required number of signatures is met), and she hopes parliament will finalize the 90% CET1 target. The Finance Ministry declined to comment. The Social Democratic camp supports the 100% CET1 requirement. The party said it will decide whether to launch a referendum only after parliament produces a final resolution; a parliamentary vote will not come before December at the earliest. But some shareholders believe the new rules will constrain UBS Group AG's room to operate. Artisan Partners has publicly called for UBS Group AG to withdraw from Switzerland because of this set of regulatory rules. Hans-Peter Portmann, a lawmaker from the center-right Free Democratic Party (FDP), has proposed a compromise: apply a 75% CET1 requirement to UBS Group AG's overseas subsidiaries, accompanied by a mechanism that automatically enhances the bank's loss-absorption capacity once the capital ratio falls below a certain threshold. He said: "A workable solution will ultimately be found, one that allows UBS Group AG to reasonably pay risk returns to shareholders and set aside funds for future investment, while minimizing the bank default risk faced by the Swiss public." Analysts expect other proposals to emerge before the full National Council debate in December. Regulatory stance hardening The Council of States' support for the 90% CET1 plan exceeded market expectations. Parliamentary insiders said the National Council has a higher share of left-wing party seats; the centrist and center-right camps are divided internally and overall lean toward a tougher regulatory stance. FDP lawmaker Olivier Feller said: "My personal judgment is that the National Council will most likely finalize the 90% standard in the end." He himself supports a 100% CET1 requirement for UBS Group AG's overseas subsidiaries but said the party's position is still under discussion. "We are a small country, yet we have a huge bank." Urs Saxer, a law professor at the University of Zurich, believes that any compromise will most likely end up close to the 90% standard. "UBS Group AG will not make irrational decisions," he said. "For the bank to move out of its home country, there would need to be highly convincing reasons; and the stability and legal certainty Switzerland can offer are not easy to find at present."