By Caroline Copley and Albert Schmieder
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The country's financial watchdog FINMA is pushing UBS, which was one of the biggest casualties of the credit crisis, to set up its risky investment bank as a separate entity outside Switzerland in London, New York or Singapore, the newspaper said.
Switzerland plans to force UBS and its closest rival Credit Suisse
Profitably running an investment bank -- a capital-intensive business in the best of times -- will be hard for UBS given the tough new Swiss capital requirements that analysts say will put it at a disadvantage compared with its overseas rivals.
However, the Swiss rules contain a "rebate" that would allow banks to hold less capital if there was less of a direct guarantee from a parent company to subsidiary units abroad.
"We could imagine that FINMA is pressing UBS to end the parent-company guarantees, which under the current legal set-up allows for lower capital requirements in local entities," said Sarasin analyst Rainer Skierka.
"However, it is still not clear whether creating a legally and financially independent investment banking entity would really insulate the parent company -- or in the end the Swiss government -- from potential future losses."
UBS called the WSJ report "speculation," but pointed to earlier statements that said it was looking at its "corporate structure in view of developing regulatory requirements, not only in Switzerland but also in the UK, U.S. and elsewhere."
"There is no basis for speculation about splitting off or spinning off the investment bank," UBS said in a memo sent to staff on Thursday and obtained by Reuters.
The rules under consideration by the Swiss parliament would require UBS and Credit Suisse
That consists of a Tier 1 capital ratio of 10 percent plus a further 9 percent of other forms of capital, such as contingent convertible (CoCo) bonds, which turn into equity capital if the bank lands in trouble.
Switzerland's popular right-wing Swiss People's Party (SVP) has proposed that UBS and Credit Suisse split off their U.S. divisions, separating investment banking from more stable wealth management, to shield taxpayers from any further bail-outs.
But it remains unclear if the investment bank would be entirely ring-fenced if it relocated to, for instance London, where regulators have equally been agonizing over how best to shield taxpayers from any further bail-out risk.
"One trend that we see is that the regulators worldwide want banks to be sufficiently capitalized also within the local subsidiaries," said a Swiss regulatory source.
Britain's Independent Commission on Banking may want banks to put up separate capital for retail banking operations, a less severe option than cutting all ties between investment and retail banking, a scenario it originally suggested.
Last month, UBS called for a year's delay to the stringent Swiss capital rules to allow more clarity on international regulation, while striking a more conciliatory note by vowing to keep its base in Switzerland.
Last week, Chief Executive Oswald Gruebel said UBS planned to invest in rebuilding teams in a move to reassure staff, acknowledging recent scrutiny of personnel turnover at the bank. He added that UBS's ambitions went beyond being among the top five investment banks in the region.
(Additional reporting by Sarah White in London and Lincoln Feast in Singapore; Writing by Douwe Miedema and Emma Thomasson; Editing by Erica Billingham, Greg Mahlich)