UBS chair says Swiss banking giant is not ‘too big to fail’

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Fabrice Coffrini | Afp | Getty Images

UBS Group Chairman Colm Kelleher on Wednesday said the Swiss bank is “not too big to fail,” as he criticized Swiss government proposals to strengthen its capital requirements.

Kelleher was delivering a speech during the UBS annual general meeting — the first such gathering held since the bank completed the takeover of its former rival Credit Suisse last summer.

“UBS is not too big to fail. UBS is one of the best-capitalized banks in Europe, with a sustainable business model and a corresponding low-risk balance sheet,” Kelleher said.

He added the bank was “seriously concerned” about current discussions around additional capital requirements, which he contended would curb Switzerland’s competitiveness as a financial center and increase European regulatory fragmentation.

Kelleher said the example of Credit Suisse, which collapsed in March 2023 after years of scandals and risk management failures, showed there “can be no regulatory solution for a broken business model.”

“It was not too low capital requirements that forced Credit Suisse into the historic weekend rescue,” Kelleher told the meeting.

He noted that capital requirements for “global systemically important banks” had become much stronger since the 2007-08 financial crisis, saying that effective loss-absorbing capacity worldwide was now around 20 times stronger, with UBS’ own at more than $200 billion.

The Swiss government earlier this month made a range of recommendations aimed at protecting the wider economy from potential instability at UBS and three other major banks.

While it did not specify exactly what such stricter capital requirements would entail, the Swiss administration said they should be “tightened in a targeted way” and singled out UBS as requiring a “substantial” increase.

The proposals target banks judged “too big to fail” — a term that rose in usage after the financial crisis to describe institutions that were too systemically important to national economies for governments to allow them to collapse. This de facto state backstop was widely criticized for enabling risk-taking behavior and mismanagement.

On Wednesday afternoon, UBS shareholders at the meeting approved changes to the bank’s Additional Tier 1 (AT1) bonds, a relatively risky form of debt that can be converted into equity or written off if the bank’s capital ratio falls below a certain level.

AT1 investors expect “the possibility of a conversion rather than a pure write-down, a format used by many peers in the industry,” UBS said, adding this should be applied to future AT1 sales, too.

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