News that big Swiss banks will be subject to a higher leverage ratio of 5% hit UBS (3.5%), Credit Suisse (VX:CSGN) (-3.35%) and Julius Baer (VX:BAER) (-1.95%) shares in Zurich.
Although the Swiss regulation regarding the core ratio requirements is among the strictest in the world, the leverage ratio requirements were known to be more flexible compared to the UK and US banks. The project was on its way and is finally here.
To remain competitive, Swiss banks need to reinforce their image of ‘world’s safest banks’, especially following heavy squeezes endured during the 2008 financial crisis and after its most valuable asset – the banking secrecy – has been shattered.
As a result of the new regulation, biggest Swiss banks will need to divest their capital intensive activities and will certainly need to reduce their dividends in order to consolidate their balance sheets. Naturally, less leverage means tighter liquidity in the market, which somewhat goes against the SNB’s efforts to loosen the monetary conditions in the Swiss market, hence to curb the franc appreciation.
While the euro is successfully kept in 1.08/1.10 implicit band, the broad-based weakness in the US dollar sent it to 0.9580 against the franc, its cheapest level since September 18th.
New measures could give a bit of shine to the franc and re-charm safe-haven investors. The Swiss National Bank could hence speed up its foreign exchange operations to keep the franc at acceptable levels. However, the pressure on the SNB’s balance sheet will certainly be inconsequential; the negative rates on the franc are to remain the major drag for investors craving to re-build franc denominated positions.