Finance

Vanguard’s expired patent may emerge as game changer for fund industry

Published

2 months ago

March 29, 2025

Business Finance News

SEC to decide on a new ETF structure and crypto's path forward in ETFs

An expired patent — previously held by Vanguard — may spark a shake-up in the exchange-traded fund industry.

Wall Street saw the patent as critical to Vanguard’s success because it saved an enormous amount of money in taxes. Now, the firm’s ETF competitors could get a chance to use it, too.

“It’s really a game changer,” BNY Mellon’s global head of ETFs’ Ben Slavin told CNBC’s “ETF Edge” this week.

Vanguard’s patent expired in 2023. How it works: Investors can access the same portfolio of stocks through two different formats: a mutual fund and an ETF. The portfolio has the same managers and the same holdings. “ETF Edge” host Bob Pisani notes the advantage is that it reduces taxable events in a (shared) portfolio.

Ben Johnson of Morningstar contends the structure could help millions of investors reduce tax burdens. His research firm describes it as a way for ETFs to exist as a separate share class within a mutual fund.

“ETF share classes appended to the mutual fund would help improve the tax efficiency of the fund to the benefit of everybody,” said Johnson, the firm’s head of client solutions.

It will ultimately come down to approval by the Securities and Exchange Commission.

“My thesis has been that it’s a matter of when, and not if,” said Johnson, who added the ETF industry thinks it could happen as soon as this summer.

Finance

Stocks making the biggest moves midday: WOOF, TSLA, CRCL, LULU

Published

1 day ago

June 6, 2025

Business Finance News

Finance

Swiss government proposes tough new capital rules in major blow to UBS

Published

1 day ago

June 6, 2025

Business Finance News

A sign in German that reads “part of the UBS group” in Basel on May 5, 2025.

Fabrice Coffrini | AFP | Getty Images

The Swiss government on Friday proposed strict new capital rules that would require banking giant UBS to hold an additional $26 billion in core capital, following its 2023 takeover of stricken rival Credit Suisse.

The measures would also mean that UBS will need to fully capitalize its foreign units and carry out fewer share buybacks.

“The rise in the going-concern requirement needs to be met with up to USD 26 billion of CET1 capital, to allow the AT1 bond holdings to be reduced by around USD 8 billion,” the government said in a Friday statement, referring to UBS’ holding of Additional Tier 1 (AT1) bonds.

The Swiss National Bank said it supported the measures from the government as they will “significantly strengthen” UBS’ resilience.

“As well as reducing the likelihood of a large systemically important bank such as UBS getting into financial distress, this measure also increases a bank’s room for manoeuvre to stabilise itself in a crisis through its own efforts. This makes it less likely that UBS has to be bailed out by the government in the event of a crisis,” SNB said in a Friday statement.

‘Too big to fail’

UBS has been battling the specter of tighter capital rules since acquiring the country’s second-largest bank at a cut-price following years of strategic errors, mismanagement and scandals at Credit Suisse.

The shock demise of the banking giant also brought Swiss financial regulator FINMA under fire for its perceived scarce supervision of the bank and the ultimate timing of its intervention.

Swiss regulators argue that UBS must have stronger capital requirements to safeguard the national economy and financial system, given the bank’s balance topped $1.7 trillion in 2023, roughly double the projected Swiss economic output of last year. UBS insists it is not “too big to fail” and that the additional capital requirements — set to drain its cash liquidity — will impact the bank’s competitiveness.

At the heart of the standoff are pressing concerns over UBS’ ability to buffer any prospective losses at its foreign units, where it has, until now, had the duty to back 60% of capital with capital at the parent bank.

Higher capital requirements can whittle down a bank’s balance sheet and credit supply by bolstering a lender’s funding costs and choking off their willingness to lend — as well as waning their appetite for risk. For shareholders, of note will be the potential impact on discretionary funds available for distribution, including dividends, share buybacks and bonus payments.

“While winding down Credit Suisse’s legacy businesses should free up capital and reduce costs for UBS, much of these gains could be absorbed by stricter regulatory demands,” Johann Scholtz, senior equity analyst at Morningstar, said in a note preceding the FINMA announcement.

“Such measures may place UBS’s capital requirements well above those faced by rivals in the United States, putting pressure on returns and reducing prospects for narrowing its long-term valuation gap. Even its long-standing premium rating relative to the European banking sector has recently evaporated.”