UBS Must Revise Post-Takeover Emergency Plans, Finma Says

(Bloomberg) — UBS Group AG must revise its plans for emergency recovery and resolution to take account of the integration of Credit Suisse, Swiss financial supervisor Finma said.

“The current resolution strategy for UBS only provides for the continuation of business activities as part of a restructuring of the business model,” Finma said in a release on Tuesday. “Based on the experience of the Credit Suisse crisis, additional options for action are required to further strengthen crisis preparations and resolution planning for systemically important banks.”

UBS is in the midst of integrating its former rival following the emergency takeover last year, and is already facing substantially higher capital requirements as a result of its increased size and complexity. The collapse of Credit Suisse is currently the subject of a parliamentary investigation, and the findings, due by the end of the year, could also affect how UBS is regulated. 

Finma maintained that the lender continues to fulfill the requirement for loss absorption capacity and could also presently be resolved by a ‘single point of entry’ recapitalization. However, the bank must calculate more conservatively how much liquidity it can generate in a crisis, the regulator said. It must prepare more comprehensively for such an event, it added.

“In its emergency plan, UBS must in particular revise the liquidity planning and the refinancing of the Swiss entity when the emergency plan is activated,” it said. Credit Suisse’s demise was accelerated by the unexpected speed of the withdrawal of client funds, aided by digital banking services. Finma said a new approach needs to take account of these changes. 

Already Started

UBS’s resolution planning needs to be further developed to ensure that the bank can exit the market by selling business units or the whole company, without jeopardizing the stability of the financial system or using taxpayer’s money, the regulator said. 

In an emailed statement, UBS said that it already started on this work.

“UBS has a sustainable business model with a total loss absorbing capacity of around $200 billion,” the bank said. “UBS meets the current requirements to be resolvable in accordance with the preferred resolution strategy in the event of a crisis.”

Finma suspended assessing the bank’s current recovery and emergency plans as UBS has to harmonize the group structures, processes and IT platforms after the combination with Credit Suisse, it said.

The Swiss government presented in April a sweeping set of bank reforms based on lessons drawn from the crisis at the formerly second-largest Swiss lender. These could see an increase in regulatory capital requirements for UBS of around $20 billion. 

“As a global systemically important bank, UBS has to fulfill special crisis prevention requirements,” Finma said.

–With assistance from Paula Doenecke.

(Updates with further details throughout)

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