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SNB lauds UBS, Credit Suisse capital steps, warns on leverage

The logos of Swiss banks UBS and Credit Suisse are seen on a sign in Zurich, February 13, 2013. REUTERS/Michael Buholzer
The logos of Swiss banks UBS and Credit Suisse are seen on a sign in Zurich, February 13, 2013. REUTERS/Michael Buholzer

By Katharina Bart

ZURICH (Reuters) - The Swiss National Bank welcomed measures by Credit Suisse and UBS to bolster their capital levels, but said leverage ratios still lag international rivals.

"Given the prevailing risks in the environment and the losses incurred in the recent financial market crisis, the SNB still considers current leverage ratios at the Swiss big banks to be low," the central bank said in its annual financial stability report published on Thursday.

The SNB urged UBS and Credit Suisse to stay on course with planned measures that it said are likely to lead to a "substantial" improvement in leverage ratios by year-end.

UBS and Credit Suisse both reported a leverage ratio of 3.8 percent at the end of the first quarter on a Swiss measure which is defined as the ratio of core capital to an adjusted balance sheet total.

The report, released ahead of the central bank's June monetary policy assessment expected at 0730 GMT, comes after both banks have cut back their investment banking arms.

UBS said its leverage ratio stands just short of 2019 requirements. A spokesman for Credit Suisse declined to comment.

Credit Suisse has pruned risky assets and raised capital since last year's SNB stability report, which caused its shares to plummet to their lowest level since 1992 by suggesting it halt dividends or issue shares to bolster capital.

Credit Suisse paid a 2012 dividend of 0.75 francs per share, with only 0.10 francs in cash and the rest in shares. It flagged a return to an all-cash payout after it meets key capital ratios, expected for mid-2013.

In October, five years after it was bailed out by the Swiss government, UBS said it would fire 10,000 staff and largely wind down its fixed income business in favor of returning to its private banking roots.

DEBATE ON RULES

Leverage ratios, which measure total non-risk-weighted assets to capital, are subject to considerable regulatory debate. Global capital rules, known as the Basel III accord, allow lenders to appear well-capitalized when they are not, some regulators argue.

Those rules allow banks to use complicated measures of how risky their loans are to determine the capital they must hold. Using a tougher leverage ratio measurement - which compares a bank's shareholder equity to its total assets without using risk-weightings - the picture can appear very different.

The Basel Committee on Banking Supervision meets on Tuesday to finalize the method for working out a leverage ratio.

The SNB also warned it could take further action to prevent what it sees as lax mortgage lending in Switzerland.

"In the event of a further build-up of risks in the Swiss mortgage and real estate markets, it might prove necessary to take further regulatory measures," the SNB said.

In February, the Swiss government said it would require banks to hold additional capital against their mortgage books to restrain an overheating real estate market and "exorbitant" mortgage debt.

(Reporting By Katharina Bart; Editing by David Cowell)

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