UBS AG (UBSN) and Credit Suisse Group AG (CSGN) still need to improve their ratios of capital compared with total assets as risk-weighted models are being called into question, the Swiss central bank said today.
The central bank “recommends that they consistently and fully implement their published plans on strategy and capital-building in order to further strengthen their resilience and, in particular, improve their leverage ratios,” the Swiss National Bank said in its annual financial stability report. “By the end of 2014, Credit Suisse and UBS are likely to have already met the risk-weighted regulatory requirements applicable from 2019 and to substantially increase their leverage ratios.”
The SNB’s report last year sent Credit Suisse shares down 10 percent in one day after the central bank urged a “marked increase” in the lender’s capital before the end of 2012. That report also recommended that UBS continue with its policy of dividend restraint as it builds up capital.
Credit Suisse in July 2012 announced plans to increase capital by 15.3 billion Swiss francs ($16.5 billion) through measures including the sale of mandatory convertible securities, properties and units. The bank’s common equity ratio under fully-applied Basel III rules rose to 8.6 percent at the end of March from 6.3 percent in July 2012, which already included effects from some capital measures of Credit Suisse’s plan.
UBS’s common equity ratio under fully-applied Basel III rules rose to 10.1 percent by the end of March from about 7.5 percent a year earlier.
The ratio of loss-absorbing capital, which includes common equity and contingent securities that convert to equity at a 7 percent capital trigger, to total on and off-balance-sheet assets at both banks was 2.3 percent at the end of March, the SNB said.
“Given the prevailing risks in the environment and the losses incurred in the recent financial market crisis, the SNB still considers current leverage ratios at the Swiss big banks to be low,” it said. “This indicator is growing in importance as a measure of banks’ resilience.”
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