UBS stock rises following Swiss reform clarity

Investing.com -- Shares of UBS Group AG (NYSE:UBS) (SWX:UBSG) climbed 5% in Swiss trading today after the Swiss government provided long-awaited clarity on banking reform proposals that could require the bank to raise as much as $26 billion in fresh capital. The increase in UBS’s stock price reflects investor relief over the detailed legislative outline released Friday, which ends a period of uncertainty regarding the bank’s capital requirements.

The most significant impact on UBS comes from a proposal demanding that the bank bolster the capital held against its foreign units from 60% to 100%, potentially leading to an additional $23 billion in capital for its Swiss-based main unit. The reforms also suggest a possible $8 billion reduction in the use of convertible debt as capital.

Despite these new requirements, the Swiss government indicated that UBS should still be able to pay dividends and pursue organic growth, assuming appropriate transition periods are allowed and profits are generated. The statement also suggested that while the bank may cut back on share buybacks and report a marginally lower return on equity, it would also benefit from reduced risks.

UBS Chairman Colm Kelleher, in a statement earlier in April, confirmed the bank’s plan to repurchase $3 billion worth of shares in 2025. This announcement came even as the bank was facing impending changes to capital rules and broader economic uncertainties.

Today’s positive market response to UBS’s stock can be attributed to the Swiss government’s assurance that the bank can maintain its shareholder remuneration plans, albeit with a potential temporary reduction in share buybacks, as it adapts to the new capital requirements. The detailed legislative proposal has provided the market with a clearer picture of UBS’s regulatory landscape, which has been favorably received by investors.

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