UBS Chairman Weber Sees Leverage-Ratio Rules TighteningElena Logutenkova
Swiss and international regulators will probably ask banks to hold more capital in relation to total assets after the U.S. raised leverage-ratio requirements for the biggest lenders, UBS AG Chairman Axel Weber said.
“I do expect that to become kind of the new norm for all the global banks,” Weber said yesterday in an interview on Fox News’s “Sunday Morning Futures” program, referring to stricter caps on leverage approved by U.S. regulators this month.
The biggest U.S. bank holding companies must amass as much as $68 billion in additional loss-absorbing capital under the new leverage-ratio rules, which require at least 5 percent capital as a proportion of assets at the holding-company level and 6 percent at banking units. The rules, designed to curtail financial-system risk, surpass the 3 percent minimum set in a global agreement by the Basel Committee on Banking Supervision.
Switzerland’s rules require that Zurich-based UBS and Credit Suisse Group AG, the country’s biggest banks, meet a leverage ratio of 4.2 percent by 2019.
“I expect that to gradually increase,” Weber, 57, said in the interview with Maria Bartiromo. “As soon as a number like that is out and a major constituency adopts this, there’s pressure on everyone else to follow.”
UBS fell 0.9 percent to 17.49 Swiss francs by 1:15 p.m. in Zurich trading, trimming the gain this year to 3.3 percent. Credit Suisse declined 1 percent to 27.77 francs.
Weber’s comments are the first admission that the biggest Swiss banks may have to boost their capital levels further. The nation’s requirements for the banks considered too big to fail are due for a review in 2015. Swiss Finance Minister Eveline Widmer-Schlumpf shook the industry in November by saying the current leverage restriction may be too low, suggesting a level of 6 percent to 10 percent.
Bank executives pushed back. UBS Chief Executive Officer Sergio Ermotti, 53, called the leverage requirement suggested by Widmer-Schlumpf an “unrealistically high demand,” Schweiz am Sonntag newspaper reported Dec. 15, citing an interview. Credit Suisse Chairman Urs Rohner, 54, said he doesn’t expect a tightening of the requirement will be necessary in 2015, according to a December interview in Bilanz magazine.
Weber said it “won’t make a big difference” for UBS whether the minimum requirement moves to 4.5 percent or 5 percent.
“But I think it’s a journey that really is now more or less clear on the horizon because the U.S. has done it,” he said in yesterday’s interview. “We’re a bank that operates in the United States, so we want to fulfill those requirements that U.S. peers have to fulfill just out of self-interest” not to be perceived as weaker.
A higher requirement in Switzerland would force banks to shrink further or accumulate more capital, potentially restricting how much they can pay in dividends.
“Given the U.S. move, Swiss proponents of a higher leverage ratio will find their hand strengthened in 2015,” Matt Spick, a London-based analyst at Deutsche Bank AG, said in a note today. “Both banks could reach a 5 percent threshold by 2016 and 6 percent by 2017 even including their current dividend plans, albeit any hopes for additional capital returns (share buybacks) could be curtailed. At the margin, we think a higher leverage ratio would be a bigger drag for Credit Suisse than for UBS.”
UBS plans to start disbursing more than 50 percent of profits in dividends after it reaches the common equity ratio of 13 percent under fully applied Basel III rules this year. The ratio stood at 12.8 percent at the end of December.
Credit Suisse doesn’t have a target for a dividend payout ratio.