The Swiss Financial Market Supervisory Authority FINMA set tough
capital requirements for the country's two banking giants -
Credit Suisse Group AG
) to safeguard these two from any further financial downturn. The
revised capital requirements are based on year-end figures of 2012.
FINMA requires capital ratio targets for these companies to be
achieved by 2019. The minimum capital requirements as a percentage
of risk-weighted assets (RWAs) are set at 19.2% for UBS and 16.7%
for Credit Suisse. Notably, these are more than double the global
Basel III standard of 8%. Further, unweighted leverage ratio for
UBS and Credit Suisse are set at 4.6% and 4.0%, respectively.
The figures varied for the companies as the targets were determined
on the basis of their size and domestic market share. Notably,
FINMA indicated that Credit Suisse has a lesser market share in the
domestic credit business.
The capital requirements came as part of the "too big to fail"
provisions. Notably, during the crisis, the Swiss banking system
was shaken when UBS reached the brink of bankruptcy that
consequently forced the government to bail it out with $60 billion.
After incurring loss in 2012, UBS swung to profit in 2013. The
company continued to exhibit efforts in strengthening its
fundamentals as it reported impressive first-quarter 2014 earnings.
However, driven by decreased trading revenues and higher provision
for credit losses, Credit Suisse posted dismal earnings.
We believe the latest enforcement by FINMA will put some pressure
on the top line of these banking giants in the short run, but it
will make them sustainable in the long run. Anyway, amid several
litigation issues and several internal inefficiencies, these
banking giants are thriving hard through their restructuring
initiatives that focus on building capital levels, achieve
operational efficiency, and reduce RWAs.
Currently, UBS holds a Zacks Rank #4 (Sell) while Credit Suisse
carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the
foreign banks space include India-based
ICICI Bank Ltd.
) and Argentina-based
Banco Macro S.A.
). Both the stocks carry a Zacks Rank #1 (Strong Buy).
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