Goldman Sachs analysts have indicated that a capital proposal recently backed by the Swiss parliament would require UBS Group to hold approximately $17 billion in additional equity capital beyond current requirements, according to informed sources.

Given that the bank already maintains common equity tier 1 capital exceeding Swiss legal mandates, Goldman calculates that based on second-quarter capitalization figures, UBS's parent bank would face a capital shortfall of roughly $7 billion.

The team led by Chris Hallam at Goldman Sachs released a report following Wednesday's vote in the Swiss Council of States, noting that "compared to the compromise proposals discussed by parliament in recent sessions, the regulatory requirements resulting from this vote are notably more stringent."

Andrew Coombs, an analyst at Citi leading his own team, also expressed concerns about the vote outcome, stating that "the legislation introduces uncertainty regarding UBS's future business model, particularly with respect to its international investment banking operations."

In market trading, UBS shares declined approximately 1.2% on the Zurich Stock Exchange, with the stock having failed to keep pace with the broader European banking sector's positive performance over recent years.

In a vote of 29 to 16 on Wednesday, the Council of States approved a compromise measure requiring UBS to back 90% of its overseas subsidiary value using its highest-quality CET1 capital.

This approach largely aligns with government demands, though it falls short of the 100% backing requirement that authorities had initially pushed for, while deviating from the compromise solution favored by UBS that would have made substantial use of convertible bonds.

UBS has clearly stated its opposition to this 90% framework, having argued in a Monday position paper that the proposal would "significantly impair" its competitiveness.

In its latest statement on Wednesday, UBS further rejected the Swiss parliament's decision and emphasized its focus on protecting its long-term interests.

The bank stated: "This political outcome is not a compromise, nor does it address the root causes of the Credit Suisse collapse. It disregards the serious concerns expressed by the vast majority of respondents during the democratic consultation process, including all business representatives, relevant employee associations, and a majority of the cantons."

Since the collapse of Credit Suisse in 2023, Switzerland has been seeking ways to make its only global bank resilient against crises, with the government's approach centering on substantial increases in equity capital.

UBS executives have strongly opposed this direction, arguing it would render the bank uncompetitive.

Lawmakers selected from three proposals following a debate that extended beyond the allotted time.

The Swiss government's original proposal required UBS to back its overseas subsidiaries with 100% equity, potentially forcing the bank to inject up to an additional $20 billion in high-quality CET1 capital into domestic entities.

The other two options involved seeking 90% equity backing, or providing full support through a structure of 50% equity plus 50% convertible debt in the form of so-called AT1 bonds.

UBS had originally supported this final hybrid approach while rejecting the other alternatives.

Swiss Finance Minister Karin Keller-Sutter delivered an extensive address to lawmakers before the vote, systematically countering the arguments presented by UBS and its parliamentary supporters against the government's plan.

Ultimately, lawmakers voted in favor of a measure more closely aligned with her original proposal rather than what UBS had hoped for.

Keller-Sutter stated: "UBS does not deny that it possesses the necessary funds for this capital replenishment," with the key question being whether those funds are "used to strengthen the Swiss parent bank as the Federal Council desires, or distributed to shareholders in the form of dividends and share buybacks."

The government proposal is widely considered the heaviest burden for UBS, while the AT1 approach is viewed as the most cost-effective option, though it still represents an elevation in capital regulatory requirements.

Current Swiss banking rules mandate 60% capital backing for overseas subsidiaries, with up to one-quarter of that coverage permitted through AT1 bonds.

The government has stated that the existing standards proved inadequate during the Credit Suisse collapse nearly four years ago.

UBS CEO Sergio Ermotti and Chairman Colm Kelleher have issued multiple public statements in recent days warning lawmakers against adopting the government proposal, with a group of influential lobbying organizations also publishing an open letter making similar appeals.

UBS acquired Credit Suisse in early 2023 through an emergency transaction orchestrated by the government, and management has expressed frustration that Swiss authorities subsequently attempted to impose higher capital constraints on the bank following the acquisition.

Keller-Sutter has stated that her proposal would ensure UBS's resilience during potential crises, protecting Switzerland from a scenario in which its largest bank could slide toward collapse, and she dismissed the notion that AT1 bonds could substitute for CET1 capital in such situations, citing widespread doubts about their applicability during crisis scenarios.

The revision of Swiss banking law remains unresolved, with the vote outcome now moving to the more left-leaning National Council, which may debate the matter and form its own position by year-end, with no final decision anticipated before next year.

If the two chambers disagree on details, they will begin shuttling the legislation back and forth in an attempt to finalize a unified text, with the ultimate determination regarding UBS's capital requirements potentially not occurring until 2027 at the earliest, and the decision could also be subject to a national referendum.