Swiss UBS to use profits, dividend for new capital rules
Swiss banking giant UBS said on Thursday that it was ready to tap into its profits and would not pay a dividend so as to meet new international "Basel III" rules on capital adequacy levels by 2013.
“Based on previously announced profitability targets, UBS expects to satisfy the required core capital ratios through retained earnings by 2013,” the bank said in a statement.
Chief Financial Officer John Cryan said the new rules, aimed at strengthening the banks to avoid a repeat of the recent financial crisis, will result in a reclassification of assets, with those rated highest risk doubling as a result.
Under current accounting rules, such high risk assets are valued at 205 billion Swiss francs (210 billion dollars, 152 billion euros) but under the Basel III definition they would be “in the range of 400 billion Swiss francs,” UBS estimated.
The bank said it planned to take unspecified “mitigating steps” to reduce those assets to some 300 billion Swiss francs before implementation of the new standards.
Cryan indicated that compliance with Basel III capital requirements would mean not paying shareholders dividends until around 2013.
“The last thing we want to do is raise more money. We do not want to issue new shares for cash. That does mean unfortunately that we have to retain capital,” Cryan said in remarks to a financial conference in London.
Swiss regulators have also suggested that UBS and its big rival Credit Suisse should face additional requirements to Basel III because of their size and influence on the Swiss economy.
A report containing proposals for additional domestic regulation is expected to be released by the Swiss Financial Markets Authority (FINMA) in the coming days.
The Basel III plans drawn up by central banks and regulators will be presented for approval to the Group of 20 (G20) summit of major industrialised and developing nations in South Korea in November.
Under the proposals, requirements for banks’ top quality Tier One capital cover will rise to the equivalent of seven percent of their risk assets from the current two percent.
Credit Suisse and UBS said in their second quarter results that their Tier One capital ratios stood at 16.3 and 16.4 percent respectively under the current definition.
“The big Swiss banks will be affected more than other international banks because of their strong presence in investment banking,” said Zuercher Kantonalbank analyst Andrea Venditti.
However, they also have a better capital base than others, he added.
Credit Suisse said on Wednesday that it expected to remain above the new international standards.
UBS’s share price was down by 0.6 percent in afternoon trading (1319 GMT) on Thursday, recovering from a steeper fall in the morning.