UBS Declines as Analysts Warn Capital Rules to Hurt Buybacks

(Bloomberg) — UBS Group AG fell the most in two months as analyst warned that new capital demands imposed by Switzerland could crimp the bank’s competitiveness and its ability to make investor payouts. 

Shares of the wealth manager declined as much as 7.4% on Tuesday, more than reversing gains from Friday, when the publication of the capital requirements was greeted with initial relief that months of uncertainty had finally ended. 

“The overall proposal impact is the worst globally we are aware of,” JPMorgan Chase & Co. analyst Kian Abouhossein said in a note. He cut his share buyback forecast to $3.5 billion from $6 billion for next year, and halved it to $4 billion from $8 billion for 2027.

The Swiss government on Friday presented legislative proposals that could end up forcing UBS to add as much as $26 billion to its capital cushion. The bank criticized the plan as “extreme” and said it will continue its lobbying efforts to change the draft as it goes through Switzerland’s drawn-out legislative process. 

While the lender confirmed its payout plans for this year, it said it would update on its “2026 capital returns ambitions” when it discloses fourth-quarter results.

Goldman Sachs Group Inc. analyst Chris Hallam also cut his forecast for UBS’s buybacks over the coming years. Investors should focus on whether the lender can find steps to mitigate the capital hit, Hallam wrote late Friday.

The new rules are aimed at boosting UBS’s resilience to future crises, following its government-engineered takeover of Credit Suisse. Reactions from various Swiss parties indicated that UBS’s lobbying campaign will face an uphill battle. 

The pro-business FDP party, which historically has been a strong proponent of legislation aimed at strengthening Switzerland as a financial center, welcomed the proposals as “going in the right direction.” It’s the party of Finance Minister Karin Keller-Sutter, who originated the reform proposals. 

The left-leaning SP party even criticized Friday’s proposals as “not going far enough” and said that the long time before implementation means they could be “watered down beyond recognition.” The party demanded that future capital requirements be increased even further to ensure that the risks posed by an enlarged UBS can be controlled. 

It may help UBS that the largest single group in parliament, the Swiss People’s Party, is broadly against significantly higher capital requirements. The right-wing party controls about a third of seats.

“UBS shares’ initial reaction was positive, likely on hopes” that the demand would be watered down by parliament, Vontobel analyst Andreas Venditti wrote in a note. Comments by the political parties since then “do not point to such outcome.”

Tuesday’s decline leaves UBS’s shares down almost 7% this year, compared with a gain of 4.6% in the Stoxx 600 Financial Services Index. 

At the current valuation, UBS’s “risk reward is attractive,” JPMorgan wrote. The “shares have priced these proposals more than enough.”

–With assistance from Noele Illien.

(Updates with details on share performance, outlook in last two paragraphs.)

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