By Adria Calatayud

Switzerland's proposal to introduce tougher capital requirements on UBS Group will be feasible for the banking giant and shouldn't excessively reduce its shareholder distributions, the country's central bank said.

UBS's current capital position and its profitability expectations, coupled with potential mitigating measures and a phased-in implementation period for the new rules, mean the required capital increase will be achievable, the Swiss National Bank said in its annual financial stability report published Thursday.

The central bank's assessment comes as UBS braces for a stricter regulatory regime in its home market in the wake of its rescue takeover of former rival Credit Suisse in 2023, a deal engineered by Swiss authorities to stem a crisis at the troubled lender that created a behemoth with a balance sheet larger than the country's economy.

The Swiss government earlier this month proposed some of the toughest capital rules in the world on UBS, in a long-awaited update of the country's "too-big-to-fail" regulations aimed at preventing a repeat of a Credit Suisse-style meltdown.

Under the proposed changes, some of which have yet to go through parliament, UBS will be required to hold around $26 billion in additional equity capital and fully back its foreign subsidiaries by capital at its Swiss parent bank. The government said the main measures could take six to eight years to fully take effect.

In response, UBS said it strongly disagrees with the proposed increase in capital requirements, calling it extreme. The move would result in requirements that are neither proportionate nor internationally aligned, the bank said.

However, Switzerland's financial regulator, Finma, and the central bank came out in support of the draft rules, saying the proposed measures would strengthen banks' resilience and the stability of the financial system.

The SNB said in its financial stability report that a full deduction of foreign participations from a parent bank's common equity Tier 1 capital--a measure of its financial strength--is the best solution to ensure full capital backing of these investments. This proposal will increase UBS's capital requirements by about $23 billion, accounting for the bulk of the capital hike, the SNB said.

The proposed measures will place UBS among the best-capitalized banks of its peer group, though not as an outlier in terms of its capital ratios, the Swiss central bank said.

High capital ratios are compatible with high market valuations, the SNB said. While more capital tends to lower the return on equity, the returns for shareholders will be more stable, it added. High capital ratios can strengthen customer confidence for the wealth management business--UBS's core business--, the SNB said.

"According to the authorities' assessment, raising capital from shareholders or excessively reducing distributions does not seem necessary," the SNB said.

Still, many analysts expect the new measures to constrain UBS's ability to hand money to shareholders through share buybacks.

Analysts at Morgan Stanley lowered their buyback expectations for UBS to $3 billion a year from 2026 onward, down from $4.5 billion in 2026 and $6 billion in each of 2027 and 2028, in a research note published Wednesday.

Write to Adria Calatayud at adria.calatayud@wsj.com

(END) Dow Jones Newswires

June 19, 2025 02:50 ET (06:50 GMT)

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