New Swiss bank laws could derail UBS’ challenge to Wall Street giants

Switzerland’s robust new banking rules create a “lose-lose state of affairs” for UBS and should restrict its potential to problem Wall Road giants, in line with Beat Wittmann, associate at Zurich-based Porta Advisors.

In a 209-page plan printed Wednesday, the Swiss authorities proposed 22 measures geared toward tightening its policing of banks deemed “too large to fail,” a yr after authorities had been compelled to dealer the emergency rescue of Credit score Suisse by UBS.

The federal government-backed takeover was the most important merger of two systemically essential banks because the International Monetary Disaster.

At $1.7 trillion, the UBS stability sheet is now double the nation’s annual GDP, prompting enhanced scrutiny of the protections surrounding the Swiss banking sector and the broader economic system within the wake of the Credit score Suisse collapse.

Talking to CNBC’s “Squawk Field Europe” on Thursday, Wittmann mentioned that the autumn of Credit score Suisse was “a completely self-inflicted and predictable failure of presidency coverage, central financial institution, regulator, and above all [of the] finance minister.”

“Then in fact Credit score Suisse had a failed, unsustainable enterprise mannequin and an incompetent management, and it was all indicated by an ever-falling share worth and by the credit score spreads all through [20]22, [which was] fully ignored as a result of there isn’t any institutionalized know-how on the policymaker ranges, actually, to observe capital markets, which is important within the case of the banking sector,” he added.

The Wednesday report floated giving extra powers to the Swiss Monetary Market Supervisory Authority, making use of capital surcharges and fortifying the monetary place of subsidiaries — however stopped in need of recommending a “blanket improve” in capital necessities.

Wittman prompt the report does nothing to assuage considerations in regards to the capability of politicians and regulators to supervise banks whereas making certain their world competitiveness, saying it “creates a lose-lose state of affairs for Switzerland as a monetary middle and for UBS not to have the ability to develop its potential.”

He argued that regulatory reform must be prioritized over tightening the screws on the nation’s largest banks, if UBS is to capitalize on its newfound scale and eventually problem the likes of Goldman Sachs, JPMorgan, Citigroup and Morgan Stanley — which have equally sized stability sheets, however commerce at s a lot larger valuation.

“It comes all the way down to the regulatory degree taking part in area. It is about competences in fact after which in regards to the incentives and the regulatory framework, and the regulatory framework like capital necessities is a world degree train,” Wittmann mentioned.

“It can’t be that Switzerland or some other jurisdiction is imposing very, very totally different guidelines and ranges there — that does not make any sense, then you definitely can’t actually compete.”

To ensure that UBS to optimize its potential, Wittmann argued that the Swiss regulatory regime ought to come into line with that in Frankfurt, London and New York, however mentioned that the Wednesday report confirmed “no will to have interaction in any related reforms” that will defend the Swiss economic system and taxpayers, however allow UBS to “catch as much as world gamers and U.S. valuations.”

“The observe file of the policymakers in Switzerland is that we had three world systemically related banks, and we have now now one left, and these circumstances had been the direct results of inadequate regulation and the enforcement of the regulation,” he mentioned.

“FINMA had all of the authorized backdrop, the devices in place to handle the state of affairs however they did not apply it — that is the purpose — and now we discuss fines, and that feels like pennywise and pound silly to me.”