UBS AG (NYSE:UBS) chairman Axel Weber warned Wednesday that many of its global rivals may go along with the downsizing, as had been announced by the mega bank yesterday. The Swiss bank announced yesterday that it plans to cut 10,000 jobs by 2015.
“I suspect that many banks have not yet really understood what the consequences of the new capital rules for business will be when they come into full effect in 2019,” Weber was quoted as telling the German daily, Handelsblatt, on Wednesday.
The Swiss banking giant, already troubled with scandals and losses, plans to downsize its investment banking unit and drop risky trading activities. The bank reported a third-quarter net loss of 2.17 billion Swiss francs ($2.31 billion) mainly due to its investment banking unit, which was adversely effected by new regulations on increasing capital reserves, which reduce the amount of money for investing.
“We, on the other hand, see this new world very clearly,” he said. “Besides that, Swiss rules commit us to even higher capital demands than the 10 percent capital quota that Basel III orders”.
The Basel rules were formulated by a committee of the Bank for International Settlements, based in Basel, Switzerland, and they coordinate policy and provide banking for all the world’s central banks. For the banks, which are considered as “too big to fail”, Basel Committee rules require them to hold between 1 and 2.5 percent more and better-quality capital cushions, and by 2019 these banks are expected to have a capital buffer equivalent to 7 per cent of risk-weighted assets. The latest, Basel III, rules will be phased in from early 2013, and take full effect in 2019.
“Yes, there is regulatory pressure,” Weber was quoted as saying. “But the market environment has changed as well. Banks that see the current recovery of the markets as a lasting development are wrong. … The market environment will remain difficult”.
The main motive of such regulations is to prevent another global financial crisis like the one in 2008, when Lehman Brothers Holdings Inc. (PINK:LEHMQ) collapsed. However, some countries, like Switzerland, Britain, and the United States, have introduced more strict rules than proposed by Basel. By 2019, for example, Swiss banks will have to set aside capital that includes at least 10 percent common equity.