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

Switzerland’s strict new banking rules are creating a ‘lose-lose situation’ for UBS and could limit its potential to challenge Wall Street giants, according to Beat Wittmann, partner at Zurich-based Porta Advisors.

In a 209-page plan published on Wednesday, the Swiss government proposed 22 measures aimed at tightening supervision of banks deemed ‘too big to fail’, a year after authorities were forced to mediate the bailout from Credit Suisse by UBS.

The government-backed takeover was the largest merger of two systemically important banks since the global financial crisis.

At $1.7 trillion, UBS’s balance sheet is now double the country’s annual GDP, prompting heightened scrutiny of the protective measures surrounding Switzerland’s banking sector and broader economy in the wake of the collapse of Credit Suisse.

Speaking to CNBC’s ‘Squawk Box Europe’ on Thursday, Wittmann said the fall of Credit Suisse was “a completely self-inflicted and predictable failure of government policy, the central bank, the regulator and, above all, [of the] Minister of Finance.”

“Then, of course, Credit Suisse had a failed, unsustainable business model and incompetent leadership, all of which was indicated by an ever-declining share price and by credit spreads around the world. [20]22, [which was] completely ignored because there is actually no institutionalized knowledge at the level of the policy makers to monitor the capital markets, which is essential in the case of the banking sector,” he added.

Wednesday’s report surfaced and gave additional powers to Switzerland’s financial markets regulator, applying capital surcharges and strengthening the financial position of subsidiaries – but stopped short of recommending a “general increase” in capital requirements.

Wittman suggested the report does nothing to address concerns about the ability of politicians and regulators to oversee banks while ensuring their global competitiveness. potential.”

He argued that regulatory reforms must take priority over tightening the screws on the nation’s largest banks if UBS is to capitalize on its newfound size and finally compete with banks as the nation’s largest banks. Goldman Sachs, JPMorgan, Citi Group And Morgan Stanley – which have balance sheets of similar size, but trade at a much higher valuation.

“It comes down to a level regulatory playing field. Of course it’s about powers and then the incentives and the regulatory framework, and the regulatory framework such as capital requirements is an exercise at a global level,” Wittmann said.

“It cannot be the case that Switzerland or any other jurisdiction there imposes very, very different rules and levels – that makes no sense, then you cannot really compete.”

To enable UBS to maximize its potential, Wittmann argued that Switzerland’s regulatory regime should be aligned with those in Frankfurt, London and New York, but said Wednesday’s report showed “no will to implement relevant reforms that would protect the economy. the Swiss economy and taxpayers, but allows UBS to “catch up with global players and US valuations.”

“The track record of policymakers in Switzerland is that we had three global systemically important banks, and we are now down to one, and these cases were the direct result of insufficient regulation and enforcement of regulations,” he said.

“FINMA had all the legal background, the tools to deal with the situation, but they didn’t apply them – that’s the point – and now we’re talking about fines, and that sounds like folly to me. “