Swiss Capital Rules Cut $4bn CET1, Force $20bn Buffer at UBS
Switzerland’s final Capital Adequacy Ordinance will amortise UBS’s capitalised software over three years, increase prudential valuation adjustments and remove about $4bn of group CET1, trimming its CET1 ratio by 0.8 percentage points. New rules on foreign participations will require roughly $20bn of additional CET1, totalling $22bn.
1. Capital Adequacy Ordinance Revisions
Switzerland’s final Capital Adequacy Ordinance mandates amortisation of all capitalised software over a maximum three years, regardless of useful life, and tightens prudential valuation adjustments, increasing capital deductions for assets and liabilities with uncertain valuations.
2. CET1 Impact on UBS
UBS estimates these changes will remove around $4bn of net CET1 capital at the group level, reducing its CET1 ratio by approximately 0.8 percentage points, and strip about $2bn from UBS AG’s standalone CET1 base.
3. Foreign Participation Deductions
The amended Banking Act proposal treats investments in foreign participations as full CET1 deductions, phasing in a 65% requirement in year one and rising five points annually to 100%, which would necessitate about $20bn of extra CET1.
4. Implementation Timeline
The valuation adjustment changes take effect on January 1, 2027, software amortisation rules apply by January 1, 2029, and the seven-year phase-in of foreign participation deductions begins after parliamentary approval with no assumed delays.