UBS Group AG (NYSE: UBS) (SWX: UBSN) said new Swiss regulatory capital requirements will eliminate approximately $4 billion of net Common Equity Tier 1 capital at the group level, reducing its CET1 capital ratio by around 0.8 percentage points.

The Swiss Federal Council published its final Capital Adequacy Ordinance specifying regulatory capital treatment for banks headquartered in Switzerland. The council also submitted to parliament proposed amendments to the Banking Act governing capital treatment of foreign participations for systemically important banks.

Under the new ordinance, UBS's capitalized software will be subject to an amortization schedule of no more than three years for capital purposes, regardless of economic useful life. Prudential valuation adjustments will be revised, resulting in higher capital deductions for assets and liabilities subject to valuation uncertainty.

Changes to prudential valuation adjustments become effective January 1, 2027, while changes to capitalized software treatment must be implemented by January 1, 2029. At UBS AG standalone, the net CET1 capital impact is estimated at approximately $2 billion.

The proposed parliamentary changes would require full deduction of investments in foreign participations from UBS AG's standalone CET1 capital, phased in over seven years starting with 65% deduction in the first year and increasing by 5 percentage points annually to 100%. This would require UBS AG to hold additional CET1 capital of around $20 billion.

Including both measures, UBS estimates a total incremental CET1 capital requirement of around $22 billion at UBS AG, resulting in a de facto minimum CET1 capital ratio at UBS Group AG consolidated level of around 18.4%.

UBS said it "strongly disagrees" with the proposed package, calling it "extreme" and lacking international alignment. The bank maintains its target of achieving an underlying return on CET1 capital of around 15% and underlying cost/income ratio below 70% by end-2026, as none of the regulatory changes become effective before 2027.