The Swiss government is planning new, much stricter regulation for UBS and Credit Suisse (the two “too big to fail” banks in Switzerland). Oswald Gruebel, CEO of UBS, is not amused. While Brady Dougan, the CEO of Credit Suisse is applauding the new regulation, the UBS is implicitly threatening to move out of the country.
So, what is at stake? The Wall Street Journal spells it out clearly:
“Strict by international comparison, the draft law goes beyond the Basel III rules on bank capital. It would require UBS and Credit Suisse to hold at least 19% of risk-weighted assets in total capital, of which 10% would be common equity. By contrast, the Basel III regulations call for just 10.5% in total capital and 7% in common equity.”
The UBS is worried about this competitive disadvantage looking at rivals like Deutsche Bank or Goldman Sachs. In some areas, notably in investment banking, more equity has to be ponied up for risky business which put cost pressure on the bank as equity is expensive. However, these new rules will help the Swiss Banks to regain part of their reputation that has been tainted in the last financial crisis. Especially the UBS has detstroyed billions upon billions through risky subprime deals. In the end only the Swiss government, and ultimately the tax payer, has saved UBS from going the Lehman way. UBS should be grateful that this new law will make clear to the whole world how safe Swiss banks are. A priceless competitive advantage, especially for the wealth management division. At the very least, Oswald Gruebel should stop complaining and threatening the Swiss government who has saved his bank only two years ago.