UBS could emerge fundamentally changed from its dispute with Swiss authorities over post-Credit Suisse capital requirements.
Recently, UBS suffered a setback in Switzerland’s parliament after the Council of States backed a proposal requiring the bank to fund 90% of the value of its foreign subsidiaries with top-quality equity capital.
The rules could make it more difficult for UBS to operate a global investment bank and major international wealth-management business from Switzerland.
UBS may eventually keep its Swiss corporate, retail, and private banking operations at home while separating some international activities. A recent Bloomberg article by Paul J. Davies presents several possible outcomes, including UBS leaving Switzerland, receiving a takeover offer or splitting parts of its business.
The debate follows the 2023 collapse of Credit Suisse and the government-backed takeover by UBS. Swiss authorities want the country’s largest bank to hold more capital at its Swiss parent to reduce the potential cost to taxpayers if it faces another crisis.
Meanwhile, UBS argues that the proposed rules are excessive and could damage its competitiveness.
Read More: Former UBS Technology Head Paul McEwen Joins Citi
UBS AG Will Need Around USD 16 Billion Estimated In Additional CET1 Capital
The Council of States has backed a provision requiring UBS to support its foreign subsidiaries with CET1 capital equal to 90% of their value. The vote was a compromise between the government’s proposed 100% CET1 backing and UBS’s preferred model, which would have combined 50% CET1 with 50% Additional Tier 1 capital.
If the measure becomes law, UBS estimates that UBS AG would need around USD 16 billion in additional CET1 capital. The bank estimates that ordinance-level measures adopted earlier this year would add approximately USD 2 billion, while around USD 15 billion is already required under existing rules following the Credit Suisse acquisition. Taken together, UBS says the incremental CET1 requirement since the acquisition could reach about USD 33 billion.
UBS also estimates that the ordinance changes would reduce CET1 capital at the consolidated group level by about USD 4 billion and says the total annual cost associated with the acquisition would be around USD 2.5 billion.
The legislation has not been finalised. It must still be considered by the National Council, and the final outcome is expected no earlier than 2027. The rules would be phased in over several years rather than taking effect immediately.
UBS chairman Colm Kelleher has said the bank may need to reconsider its base if the capital demands become too high.
Finance Minister Karin Keller-Sutter has argued that moving UBS abroad would be more complex and costly than meeting the new requirements.
Yes, a complete departure from Switzerland would be difficult because UBS’s history, identity and brand are closely associated with the country. However, it may no longer be enough to preserve the bank’s current global structure if the new rules materially reduce returns.
