UBS Says Capital Reforms Could Put Its Swiss Future in Doubt

(Bloomberg) — UBS Group AG reiterated its scathing critique of Switzerland’s planned changes to banking regulation, saying they may put the firm’s role in the country at risk.

If UBS had to shift its strategy as result of the reforms, it “would be forced to fundamentally question its future as a leading Swiss bank and global wealth manager in Switzerland,” it said in a report published on its website Tuesday.

UBS’s capital reserves have been a cause for concern for the Swiss authorities since its local rival Credit Suisse almost collapsed in 2023 and was bought by UBS in an emergency rescue.

The Swiss bank is estimated to face as much as $26 billion in new capital demands as a result of the proposed regulation changes, unveiled earlier this year. UBS has since stepped up its lobbying efforts and said it’s studying options to mitigate the expected impact.

A potential move of the headquarters is one option, albeit a very unlikely one, people familiar with the matter have said. Lars Foerberg, a managing partner at Cevian Capital, which is one of UBS’s biggest shareholders, said in a recent newspaper interview that the bank has “no other choice but to leave Switzerland or be acquired by a competitor” if the government puts the reforms in place unchanged.

There’s a chance that lawmakers will dilute the proposals when they are debated in parliament. The country’s strongest party, SVP, said last weekend the government needs to find a compromise with UBS to avoid turning the firm into a potential takeover target.

The influential business lobby group Economiesuisse echoed the concerns, labeling the government proposals as too far-reaching and a threat to business competitiveness.

Chief Executive Officer Sergio Ermotti said during a presentation on Tuesday that UBS isn’t currently in talks with the Swiss government about any potential compromise. Chief Financial Officer Todd Tuckner said at the same event it’s also “premature to discuss mitigating actions” that UBS could take.

UBS said in the report published Tuesday that the Swiss proposals would fail to address the root causes of Credit Suisse’s demise, which it attributed in large part to “far-reaching regulatory concessions over many years” in the run-up to the crisis.

UBS also blasted “a lack of an in-depth regulatory impact assessment” of potentially less drastic alternatives to the proposed measures.

Last week, the government proposed giving UBS seven years to phase in full capital backing for foreign subsidiaries, a change that’s expected to account for the biggest chunk of the higher capital requirements. With the law unlikely to take effect before 2028, UBS would have until 2035 to build up the buffer.

UBS, political parties and other interested groups have until Jan. 9 to give feedback to the government, which will then finalize the proposals and submit them to parliament.

The current proposals would require UBS to fully deduct investments in foreign subsidiaries from a regulatory buffer known as CET1 capital.

In the report on Tuesday, which UBS prepared as an official response to the Swiss reform proposals and published after a consultation period ended on Monday, the lender presented a long list of grievances.

Proposals for the treatment of software and deferred tax assets are “disproportionate” and would “destroy” around $11 billion of capital “without sufficient justification” The estimated cost of capital used in a study cited by the government is “out of touch with reality” and the actual cost of capital is much higher The amendments to the ordinance would lead to the group’s effective capital being “significantly understated” The proposal to strengthen Additional Tier 1 capital is “not targeted and has not been internationally aligned” The consultation draft does not contain any transitional periods for the far-reaching changes –With assistance from Bastian Benrath-Wright.

(Adds CEO and CFO comments in eighth paragraph.)

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