Obama move on banks puts non-G20 Swiss in spotlight

* Swiss outside the G20, less pressured by regulatory coordination

* Swiss central banker warms to integrated bank model

* Possible competitive advantage for UBS, Credit Suisse

* Swiss acted early on bank risk

By Martin de Sa'Pinto and Lisa Jucca ZURICH, Jan 22 (Reuters) - The latest move by U.S. President Barack Obama to rein in banks poses new questions of the Group of 20 nations and their banking regulation but as a non-member, Switzerland and its heavyweights UBS (UBSN.VX) (UBS.N) and Credit Suisse (CSGN.VX) could chart a different course. [ID:nN21658127]

"The Swiss have already provided a lot of disincentives such as leverage ratios for banks to use their balance sheet for proprietary trading, so the authorities may not feel the need to follow suit," said Cheuvreux banking analyst Christian Stark.

As legislators weigh calls by Obama to ban banks from trading on their own account or from owning hedge funds or private equity, analysts say Switzerland may feel less pressure than Washington's G20 peers and opt to merely tweak its own rules on risk.

Possible G20 initiatives include a global tax on financial transactions proposed by member Britain at a summit late last year which the International Monetary Fund is now looking at.

Swiss regulators clamped down on bank risk including prop trading early, drafting tougher legislation as early as mid-2008, months before the Lehman Brothers collapse.

They forced UBS and Credit Suisse to boost their capital ratios to twice international minimum standards and have introduced a leverage ratio that limits a bank's ability to grow through raising debt. [ID:nLQ145361]

As a result, JP Morgan analyst Kian Abouhossein said in a note that Swiss banks would see a lower impact on earnings per share than rivals if the Obama plan does take shape: "Swiss banks are less exposed considering their better business mix and equity gearing."

Switzerland is taking further action too, drafting new liquidity rules, expected in the first half of this year. That would hike the proportion of low-risk assets held by banks against overall deposits.

Like international peers, the Swiss are also addressing the "too big to fail" issue, now being tackled by a commission of experts.

INTEGRATED MODEL

Some analysts have said Obama's latest proposals herald the re-introduction of legislation similar to the Glass-Steagall act, which was passed after the stock market crash of 1929 to separate retail and investment banking activities, and was repealed in 1999. [ID:nLDE60L0IE]

Yet a financial source said forcing the big banks to split investment banking from their traditional wealth management business, which analysts say give Swiss banks a competitive advantage right now, was not under discussion in Switzerland.

Swiss National Bank Chairman Philipp Hildebrand, who has been concerned by the size of the two banks relative to the Swiss economy, has also warmed to the idea of the integrated banking model.

"The universal banking model represents a form of risk diversification," he said in an interview last week with newspaper Le Temps.

On Friday, in reaction to Obama's call for banking changes, he told The Wall Street Journal newspaper: "Broadly speaking, we are very supportive of making sure certain activities, like prop trading activities, must not be allowed to grow again the way they did or really explode again." [ID:nLDE60L1WS]

Others argue that Obama's proposed measures would not necessarily enforce a complete separation of bank operations.

"The proposed legislation eliminates proprietary risk taking, but that doesn't run contrary to the integrated bank model," said Cheuvreux's Stark.

Investment banking profit drivers such as mergers and acquisitions, capital raising and trading on clients' behalf, which have not been singled out as undesirable, may yet remain intertwined with other traditional activities.

But much hinges on the details of the new rules.

"For me the biggest question is how far will the U.S. go in the definition of prop trading," said Dirk Hofmann-Becking, an analyst at Sanford Bernstein.

"If is just prop trading it should not make a difference," he said.

"If it extends to any kind of risk-taking that would certainly affect the banks because they are built around the one bank model."

In the longer term, the restriction or elimination of banks' trading activities may even be a boon for shareholders, said Helvea analyst Peter Thorne: "Most of the gains from taking these proprietary trading risks went to the bank's staff rather than shareholders, so I suspect long-term shareholders will actually be grateful."