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UBS, Credit Suisse (CS) Might Face Higher Liquidity Requirements

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The Swiss regulators are of opinion that both UBS Group (UBS - Free Report) and Credit Suisse Group (CS - Free Report) are required to bolster their liquidity positions. The observation was a result of an analysis conducted on the country’s systemically important banks.

The test results indicated that in case of any emergency or a default event, current liquidity requirements would not be sufficient to weather any downturn.

Per the Banking Act, banks are expected to not require bailing out using taxpayers' money. For this reason, the Federal Council conducts a report every two years to check whether these provisions are in line with the international standards, and how the standards have been implemented abroad.

In this fourth report, the council said that a group with representatives from the Federal Department of Finance (“FDF”), Swiss Financial Market Supervisory Authority and Swiss National Bank has been asked to address how the special, ordinance-level liquidity requirements for systemically important banks might be adjusted.

Also, FDF is expected to present proposals on how incentive systems for systemically important banks could be better anchored in terms of global resolvability.

Following the collapse of Archegos Capital Management in March, both the above mentioned banks were affected majorly.

Losing $5.5 billion, Credit Suisse became the bank that took the biggest hit among its peers. In fact, the loss wiped out almost all of its profits made in the first quarter of 2021. If it had not incurred the Archegos loss, Credit Suisse could have reported one of its best quarterly financial performances in almost a decade.

Banks like Credit Suisse, Nomura (NMR - Free Report) , Morgan Stanley, UBS Group, Mitsubishi UFJ Financial Group (MUFG - Free Report) and Mizuho Bank were the prime brokers that offered almost $50 billion worth of leverage to Archegos but collectively lost more than $10 billion due to the fallout.

Shares of UBS Group and Credit Suisse have gained 37.8% and 2.1%, respectively, over the past six months compared with 41% growth of the industry it belongs to.

One-Year Price Performance

Zacks Investment ResearchImage Source: Zacks Investment Research


Both the stocks are currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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