(Bloomberg) -- UBS Group AG will benefit from a more-than two year grace period before Switzerland imposes higher capital requirements related to its takeover of Credit Suisse Group AG.
An increase in capital triggered by the combined bank’s larger size will be phased in from early 2026, based on an integration plan to be developed by UBS, the lender said in a regulatory filing Tuesday.
When agreeing to take over their stricken rival for $3.3 billion in March, UBS executives had pushed for time before any higher capital demands would be implemented. UBS is also benefiting from a state guarantee of 9 billion Swiss francs ($9.9 billion) on potential losses stemming from hard-to-value assets acquired from Credit Suisse.
The bank released further details of the terms of the guarantee agreement on Tuesday, which include the establishment of an oversight committee that gives government representatives a say on how it manages assets brought over from Credit Suisse that it plans to wind down. The Loss Protection Agreement is expected to be finalized by June 7, it said.
Read More: Swiss Government to Have Say on UBS Assets Backed by Guarantee
The filing gives more insight into the bargain struck between UBS and the Swiss government, which brokered the Credit Suisse takeover. On one hand, UBS must accept state involvement in how it disposes of businesses it doesn’t want. On the other, the bank is likely to enjoy significant protection to its credit rating and, potentially, profitability from the government guarantee.
The phase-in on capital requirements also allows UBS breathing space to implement the merger, which Chairman Colm Kelleher has described as bringing a “huge amount of risk” to UBS. The historic takeover is expected to close next week, following almost three months of uncertainty for more than 100,000 employees at the two lenders.
UBS will receive a number of other regulatory benefits, including temporarily being allowed to use some rulings that applied to Credit Suisse as well as keeping its current rules for liquidity. Both banks will be able to continue their current methods of calculating risk-weighted assets.
Discussions between the bank and regulator on other capital and liquidity related topics are expected to continue after the completion of the merger.
On the loss guarantee, UBS said any backstop beyond an initial 14 billion francs would require “a separate legal basis in the form of a parliamentary approval in the ordinary legislative procedure as well as the commitment credit.”
If that’s not available, UBS may be responsible for the further amount, it said. An agreement between the government and UBS for bigger losses “would also be expected to provide for the sharing of possible profits,” according to the filing.
(Updates with government oversight committee)
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