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A sign in German which reads “part of the UBS group” in Basel on May 5, 2025.
Fabrice Coffrini | AFP | Getty images
Friday, the Swiss government proposed new strict capital rules that would require the banking giant UBS To have an additional $ 26 billion in basic capital, after taking control in 2023 from Switzerland Rival Credit Rival.
The measures would also mean that UBS will have to fully capitalize its foreign units and potentially Perform less share buybacks.
“The increase in the requirements of continuing must be satisfied up to $ 26 billion in capital CE1, to allow the AT1 obligations to be reduced by approximately 8 billion USD,” the government said in a press release on Friday, referring to UBS detention of additional level 1 (AT1).
The measures therefore amount to an additional $ 26 billion in basic capital, but a requirement of only $ 18 billion in new capital. These are $ 2 billion lower than $ 20 billion estimated by JP Morgan earlier this week.
UBS shares jumped 6% after the announcement and finished the negotiation session on Friday 3.8% higher.
The Swiss bank will become more stable and attractive in areas such as the management of assets, the Swiss Swiss Minister of Finance, Karin Keller said on Friday during a press briefing. “I do not think that competitiveness is altered, but it is true that growth abroad will become more expensive,” she said in the comments reported by Reuters.
UBS said that even if it supported “in principle” most of the regulatory proposals announced on Friday, it does not agree with the “extreme” increase in capital requirements. Based on the results of the first quarter of the bank, its objective of capital ratio of this1 between 12.5% and 13% – with a capital previously communicated – the company said that it would be required to hold around $ 42 billion in additional CE CE1 in total.
The bank has maintained its objective of achieving an underlying return on CE capital of approximately 15% and has also reaffirmed its capital return intentions for the year.
“UBS will actively engage in the consultation process with all relevant stakeholders and will help to assess the alternatives and effective solutions that lead to regulatory change proposals with a reasonable cost / advantages. UBS will also assess its appropriate shareholders, if possible, to treat the negative effects that extreme regulations would have on its shareholders.”
Johann Scholtz, leading actions analyst in Morningstar, noted that the news was “as bad as possible for UBS”.
The banking giant “can now put pressure for certain concessions and take certain measures themselves to mitigate the impact, for example upstream of a certain excess of capital of its subsidiaries,” said Scholtz. He added that although negotiations begin immediately, there will be one in a long phase for UBS to deploy the measures, with the earliest that it will apply in entirely in 2034.
JPMorgan analysts led by Kian Abuhossein also stressed that a long period of six to eight years for UBS to fulfill the deduction of investments in its foreign units is a “positive” result for the bank. With the expected finalization around 2027, JPMorgan provides for the complete implementation by 2033 at the earliest.
UBS should generate about $ 12 billion [per annum] In profits with a dividend of around 3 billion dollars, which means that the bank can “realize its” capital gap “by 2033+ and still continue with buyouts,” said analysts.
The Swiss National Bank said that it supported government measures because it “will considerably strengthen” UBS resilience.
“In addition to reducing the probability of a large bank of systemic importance such as UBS in financial distress, this measure also increases a bank’s room for maneuver to stabilize in crisis by its own efforts.
‘Too big to fail’
UBS has fought against the spectrum of stricter capital rules since the acquisition of the country’s second bank at a reduced price after years of strategic errors, mismanagement and scandals of Credit Suisse.
The disappearance of the shock of the banking giant has also shown the Swiss financial regulator Finma for its rare supervision perceived of the bank and the ultimate calendar of its intervention.
Swiss regulators argue that UBS must have more solid capital requirements to protect the national economy and the financial system, given that the bank’s balance exceeded $ 1.7 billion in 2023, almost doubled the Swiss economic production scheduled for last year. UBS insists that it is not “too big to fail” and that the additional capital requirements – defined to empty its liquidity in cash – will have an impact on the competitiveness of the bank.
At the heart of the impasse is pressing concerns concerning the ability to stamp any potential loss to its foreign units, where it has so far had the duty to support 60% of the capital with the capital of the parental bank.
Higher capital requirements can reduce a bank’s assessment and credit supply by strengthening the financing costs of a lender and stifling their desire to lend – as well as declining their appetite for risk. For shareholders, it should be noted the potential impact on the discretionary funds available for distribution, including dividends, share buybacks and bonus payments.
“Although the activities inherited from the Credit Suisse should release capital and reduce costs for UBS, a large part of these gains could be absorbed by stricter regulatory requests,” said Johann Scholtz, principal analyst in shares in Morningstar, in a note preceding the announcement of Finma.
“Such measures can place the capital requirements of UBS much higher than those faced by competitors in the United States, exerting pressure on yields and reducing the prospects for the narrowing of its long-term evaluation deviation. Even its long-term long-term rating compared to the European banking sector has recently evaporated.”
The prospect of rules of strict Swiss capital and the vast American presence of UBS through its main world wealth management division is involved while the White House trade rates already weigh on the fortune of the bank. In a dramatic turn, the bank lost his crown As the most precious lender in continental Europe by market capitalization at the Spanish giant Santander in mid-April.
– Ganesh Rao of CNBC contributed to this report.
