UBS, Credit Suisse likely need 10 billion Sfr in new capital: SNB

Switzerland’s two largest lenders, UBS and Credit Suisse, will likely each need to raise an extra 10 billion Swiss francs ($10.4 billion) in capital to meet new leverage requirements, the Swiss National Bank (SNB) said.

SNB vice-chairman Fritz Zurbrügg said the central bank “acknowledged the progress” made by larger banks to meet new regulatory capital requirements, which will start coming into force in 2019.

In its financial stability report, the SNB stated that economic and financial conditions for the Swiss banking sector have become more hard over the last 12 months and the SNB will, therefore, be very wary of any further shocks to the economy.

The decision came as the franc, which is considered a safe haven in times of global stress, faces renewed upward pressure.

Regarding possible risks to the global economy, the SNB said “the imminent United Kingdom referendum on whether to stay in the European Union may cause uncertainty and turbulence to increase”.

“It is the total of these influences in the market that determines the exchange rate”, he said.

UBS and Credit Suisse have until the end of 2019 to issue bonds and build up capital to comply with the rules, created to protect the economy from the collapse of one of its two banks. The US currency was later up almost 1% against the euro, while European shares hit a four-month low and oil prices headed for a sixth session of losses. If the EUR/CHF pair moves towards 1.05, the SNB might intervene in the foreign exchange market. But he acknowledged that other influences outside of Switzerland, notably a weak global economy, were having an opposite impact.

The SNB left unchanged its forecast for Swiss gross domestic product to grow this year between 1 percent and 1.5 percent. Even a modest rise in interest rates would leave many homeowners unable to service their mortgage loan repayments, which could have significant negative consequences for banks, he warned.

The central bank meanwhile said it expected prices to slide 0.4 percent in Switzerland this year, compared to the 0.8-percent deflation it had predicted in March.