UBS shares continued their decline on Thursday, dropping 0.5% to 41.53 francs one hour into trading, even as the broader Swiss market rose 0.3% via the SMI. The stock has shed 7.2% since reaching a multi-year high of 45 francs weeks ago, extending weakness that began with a 0.2% pullback on Wednesday.
The pressure comes amid broader selling in bank stocks, particularly after Goldman Sachs CEO David Solomon warned that the firm's fixed-income trading business is running weaker than in previous quarters and overall costs have risen. Solomon said equity trading remained "very strong" at a Barclays conference, but added that elevated activity levels would translate into higher expenses across the company. Goldman Sachs also disclosed accelerated technology investments. Its shares fell 3.9% on Wall Street.
Compounding the headwinds for UBS is an impending decision in the Swiss Ständerat — the Council of States — over stricter capital requirements for large banks. FDP representatives are expected to vote to refer the matter back to the Federal Council rather than pursue the motion directly, Ständerat member Andrea Caroni told Reuters on Wednesday. "I expect a majority in my group and am hopeful the motion will be adopted," she said, arguing that the Federal Council is the proper body to set equity requirements under existing banking law.
The Swiss government has taken a hard line, with Finance Minister Karin Keller-Sutter opposing measures that would ease rules for UBS. The government demands that UBS's foreign subsidiaries hold 100% hard core capital (CET1). By contrast, the influential Commission for Economic Affairs and Taxes referred a significantly softer counter-proposal in late August, under which UBS would be allowed to structure its foreign subsidiaries with 50% CET1 and 50% so-called AT1 bonds — a mix that is substantially cheaper for the bank.
Caroni's FDP faction, holding 12 of 46 seats in the Ständerat, recently rallied behind her motion. However, Centre Party (Mitte) representative Fabio Regazzi said he doubted the motion would secure a majority, calling the outcome "fluid" with several scenarios still possible. The largest faction, Mitte, holds 15 seats.
