(Bloomberg) — UBS Group AG executives have suggested that a permanent limit on the size of its investment bank be written into Swiss law to alleviate government concerns about a potential future rescue, a person familiar with the matter said.
A cap on one of the riskiest parts of the bank would lower the probability that future potential losses — such as the Archegos Capital hit that helped sink Credit Suisse — could endanger the whole group. The unit is already under a self-imposed limit of 25% of the lender’s balance sheet.
UBS is seeking to defuse the Swiss government’s demand that it sharply increase its capital levels by as much as $25 billion, and is examining whether it could relocate its headquarters out of the country if officials don’t back down, Bloomberg has reported. The government, which helped broker UBS’s emergency purchase of Credit Suisse two years ago, is now worried that the enlarged bank’s size poses a threat to the economy.
A spokesman for UBS declined to comment on the investment-bank proposal. Reuters reported the offer earlier.
Internal UBS calculations show that UBS key capital ratio would rise to about 20% from roughly 14% now if the government’s proposal that it fully back its foreign subsidiaries with capital is pushed through parliament.
While Switzerland wants to avoid the financial devastation that would ensue from UBS ever failing, the bank sees the capital demand as an unfair overreaction after it stepped in to rescue its former rival two years ago. UBS itself was bailed out by the Swiss government following the 2008 financial crisis, and subsequently imposed its own limits on the investment bank to signal that it wouldn’t get out of control again.
The Swiss Department of Finance said it was “in contact with UBS. However, no negotiations are taking place.” The ministry therefore “does not comment on such presumed or alleged offers.”
In a statement UBS said Wednesday that it supported the government’s proposals to strengthen financial stability, “in general.”
Disproportionate measures, such as the capital demand, are “unnecessary, lead to considerable additional costs for the bank as well as Swiss households and companies and are not compatible with the goal of having a globally competitive financial center,” it said.
(Updates with finance ministry comment)
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