UBS to Establish New Swiss Too-Big-to-Fail Banking Unit

UBS AG, Switzerland’s biggest bank, said it plans to set up a Swiss banking subsidiary because the country’s too-big-to-fail regulations may lead systemically important banks to change their legal structure.

Switzerland introduced some of the world’s strictest capital and liquidity rules in 2011, forcing UBS and Credit Suisse Group AG to hold capital equal to as much as 19 percent of risk-weighted assets by 2019. The banks will probably meet this criteria by the end of 2014, Swiss National Bank Vice President Jean-Pierre Danthine said last month.

“The modifications we are currently considering to our legal structure are part of our ongoing efforts to meet the new regulatory requirements for the banking industry,” Samuel Brandner, a UBS spokesman, said in an e-mailed statement today. “They are subject to a number of regulatory developments and can change both in terms of scope and timing. We expect implementation to begin in a phased approach in mid-2015.”

In a later statement, UBS said this is “an evolution of our approach” in response to an existing law. “Increasing resolvability beyond the requirements of the law also creates the possibility of a limited reduction of capital requirements,” according to the statement.

UBS said in its third-quarter earnings report on Oct. 29 that it plans to include its “retail and corporate business division and likely the Swiss-booked business within our wealth-management business division” in the new Swiss unit. The process won’t require the bank to raise additional equity capital, and will “not materially” affect its capital-generating capability, UBS said then.

Capital Needs

“The regulation is going in this direction” of systemically important banks improving their ability to wind down, said Andreas Venditti, a Zurich-based analyst with Zuercher Kantonalbank with an outperform rating on the stock. If UBS doesn’t adjust its legal structure, the bank would risk not getting a discount from the Swiss regulator on its capital requirements, he said in a telephone interview.

The European Union is seeking ways to structure riskier activities outside of more traditional banking to relieve taxpayers of responsibility for bailouts and to protect depositors. In the U.S., the 2010 Dodd-Frank Act gave regulators the power to restructure or sell off pieces of a bank, while the U.K. is considering separating consumer operations from investment banking.

The blog “Inside Paradeplatz,” citing an unidentified person with knowledge of the matter, reported today UBS plans to establish three legal subsidiaries in Zurich, London and New York, under a plan called White Bank. UBS declined to comment.

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