UBS AG (UBSN) Chief Financial Officer Tom Naratil said the financial industry needs to continue deleveraging as the size of bank assets hasn’t “substantially changed” since the global financial crisis.
“The need for further industry deleveraging is clear,” Naratil, 51, told investors at a Bank of America Merrill Lynch conference in London today, adding that UBS also needs to reduce its leverage, or assets versus capital.
Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings Plc (HSBA), Morgan Stanley and UBS boosted their cumulative common equity by 59 percent from the end of 2007 through June to $681 billion, according to Naratil’s presentation slides. At they same time, they reduced funded assets by 16 percent to $9.25 trillion, they showed.
Switzerland’s largest bank plans to reach its targeted 13 percent common equity ratio under fully applied Basel III rules in 2014, with an aim to pay out more than 50 percent of earnings in dividends afterward, Naratil said. UBS also plans to cut its leverage further over “the next few years,” he added.
The lender, based in Zurich, will also be a “steady issuer” of contingent capital in the coming years to meet regulatory requirements, while continuing to cut legacy assets though not at any cost, according to Naratil.
“Certainly speed is important, but long-term value creation remains paramount,” he said.
Naratil urged regulators to find “a common approach” when looking at leverage ratios and consider the quality of both assets and capital for calculations.
“Global coordination and cooperation is essential to resolving a crisis or potentially to preventing and mitigating an upcoming crisis,” Naratil said. “If left unchecked with vastly different treatments in regimes, you’ll have regulatory arbitrage and the industry will look to take advantage of that. Banks will all move to the leaky side of the boat, and that’s not the best outcome for the industry.”
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