UBS shares rise 3.8% after Swiss government proposes tough new capital rules

European stock markets rose after digesting news of the ECB rate cut and the upward revision of first-quarter eurozone GDP this week.

The Stoxx Europe 600 index and the U.K.’s FTSE 100 rose 0.3%. France’s CAC 40 was up 0.2%. Meanwhile, Germany’s DAX fell 0.1%

Why are UBS shares rallying after the Swiss government proposed tough new capital rules?

JPMorgan analysts might also have the answer to that question.

“Today’s outcome is positive for UBS, based on our initial view, although we need to go through the full set of documents, due to the long timeframe for implementation in our view,” said JPMorgan’s analyst Kian Abouhossein in a note to clients.

Shares of the bank jumped as much as 6% after Switzerland announced highly-anticipated capital regulations calling on UBS to hold an additional $26 billion in Common Equity Tier 1 (CET1) capital.

However, the earliest that regulations will apply in full will be 2033. The law would be finalised by 2027 at the earliest, with six years given to implement the changes.

The Wall Street bank’s analysts said that UBS is expected to generate around $12 billion [per annum] in profits with a dividend of about $3 billion, which means the bank can “fulfill its ‘capital gap’ by 2033+ and still continue with buybacks.”