UPDATE 3-UBS calls for delay to tough Swiss capital rules

Thu Apr 28, 2011 8:47am EDT

* Improvement of last 2 years is sustainable-CEO

* Investment bank services indispensible for wealth manager

* Chairman sees poorly coordinated national regulation

* CEO says bank should stay "independent and Swiss"

(Adds shareholder comment, compensation vote)

By Emma Thomasson

BASEL, April 28 (Reuters) - UBS AG (UBSN.VX) called for a year's delay to stringent Swiss capital rules to allow more clarity on international regulation, while striking a more conciliatory note by vowing to keep its base in Switzerland.

Chairman Kaspar Villiger told the bank's annual shareholders' meeting on Thursday that UBS was not threatening to relocate abroad and was aware of the advantages of being based in Switzerland, but wanted to highlight the risks of tightening rules ahead of other states.

"It is ... not clear why Switzerland needs to rush ahead with legislation before we have a better idea of what is really happening internationally. Even in just one year's time we would have a much better idea," he said.

"It is precisely because we are committed to Switzerland as a financial centre... that we are trying, despite all the criticism, to avoid unnecessarily weakening Switzerland."

UBS Chief Executive Oswald Gruebel has said stiff Swiss capital standards -- which the government sent to parliament last week and hopes to get be approved this year -- could force the bank to move units abroad. [ID:nLDE73K06O]

Several Swiss shareholders expressed anger at the AGM that UBS could suggest leaving the country after the government bailed out the bank at the height of the financial crisis.

"I am glad we are having this AGM in Switzerland and not in the Bahamas or Panama City," joked author and bank critic Rene Zeyer. "They have learned nothing, understood nothing. It's full speed ahead into the next catastrophe."

The bank had reported first-quarter earnings on Tuesday which showed money pouring back into its core wealth management arm, while its struggling investment bank did better than expected, although it said it might have to reassess some of its activities in light of international regulations. [ID:nLDE73P01W]

EMOTIONAL TOPIC

"I am confident that the remarkable financial improvement that we have achieved in the last two years is sustainable," Gruebel said, adding UBS should stay "independent and Swiss".

Gruebel said the "too big to fail" reform was an emotional topic and admitted UBS had sometimes adopted the wrong tone in the debate, but said the bank should not be silent on the subject just because of the mistakes it made in the past.

"If Switzerland is the only country to place a disproportionate burden on its big banks, it could lose some of the prosperity it has gained," he said.

The UBS comments contrast with remarks from Credit Suisse CEO Brady Dougan, who said he did not expect the Swiss rules to have a big impact on his bank's competitive position and sees progress towards a more level playing field internationally. [ID:nLDE73P1FN]

Villiger said "poorly coordinated national regulation often drawn up under populist political pressure" would force big banks to exploit regulatory differences, warning that many businesses would migrate to less tightly controlled markets.

"In this difficult environment, we, as a global bank, 80 percent of whose shareholders are non-Swiss, must seek the optimum structure for our business," he said.

Villiger noted that independent advisory firm Autonomous Research calculated that 30 billion Swiss francs ($34.22 billion) could be distributed to shareholders if UBS sold its Swiss retail and corporates business, used the proceeds to boost its investment bank and shifted its head office to New York.

Meanwhile, the popular right-wing Swiss People's Party (SVP) has proposed that the big banks split off their U.S. divisions, separating investment banking from wealth management.

But Villiger and Gruebel defended the integrated bank model, saying investment banking provided important services for Swiss firms and was also indispensible for a global wealth manager.

Despite a cut to the bonus pool of 11 percent in 2010 and Gruebel forgoing his bonus again, shareholders are still unhappy with the pay structure, with 32 percent voting against the UBS compensation report, down from around 40 percent last year.

Villiger said the bank would keep working to improve its compensation structure, noting ongoing criticism from influential shareholder groups, but said it could not go too far without losing staff: "We must be competitive in the sector." (Editing by Alexander Smith and Sophie Walker) ($1=.8766 Swiss Franc)

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