By Caroline Copley and Albert Schmieder
ZURICH (Reuters) - UBS
The country's financial watchdog is pushing UBS -- one of the biggest victims of the credit crisis -- to set up its risky investment bank as a separate entity outside Switzerland, the newspaper said, in London, New York or Singapore.
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.
"It's (relocating investment banking) definitely something... they have been looking at," said Vontobel analyst Teresa Nielsen, who values the investment bank at about 31 billion Swiss francs ($35.4 billion).
"They have to have ... a level playing field with their competitors. They would be very disadvantaged if this Swiss regulation were to come through."
UBS declined to comment on the WSJ report on Thursday, 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."
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 turns into shareholder equity if the bank lands in trouble.
HEAD SCRATCHING
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 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.
"There would be a big scratching of the head and questions over 'do we really want responsibility for the whole of the investment bank to be domiciled here,' said Chris Wheeler, an equity analyst at Mediobanca.
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 Neil Fullick, Mike Nesbit and Erica Billingham)
