UBS: the bank that outgrew a country

Swiss Finance Minister Karin Keller-Sutter and UBS Chair Colm Kelleher after the collapse of Credit Suisse in March 2023. Keystone / Peter Klaunzer

UBS chair Colm Kelleher was driving back to Zurich from Bern in March 2023 when his phone rang. The Irish banker was heading home after a weekend of tumultuous negotiations that had culminated in a historic $3.25 billion (CHF2.55 billlion) deal to rescue UBS’s rival Credit Suisse.

On the other end of the line was Jamie Dimon, chief executive of US giant JPMorgan Chase and a veteran of emergency bank takeovers, calling to offer a piece of advice, even as he thanked Kelleher for his contribution in stabilising the global banking system.

Dimon — whom Kelleher knew well from his years atop Wall Street rival Morgan Stanley — had a clear message, according to people briefed on the conversation: do not let the Swiss authorities change the terms of the deal to acquire UBS’s traditional adversary.

More than three years later, UBS and the Swiss government remain locked in a stand-off over how much capital it must have to guard against disaster, a dispute that stems from the deal struck on that fateful March Sunday.

The unusually public confrontation goes to the heart of Switzerland’s economic model and the dilemma of whether a small state with nine million people can host a financial behemoth such as UBS, whose $1.6 trillion of assets exceed the size of the entire Swiss economy.

The bank argues that proposals forcing it to have $20 billion more in capital to back its foreign subsidiaries would damage its ability to compete globally. Many of its rivals, especially in the US, are benefiting from a loosening of capital rules.

People inside UBS also intimate that senior politicians gave assurances when they asked it to save Credit Suisse, but rowed back on these commitments after the rescue.

The saga has prompted some investors to urge UBS to loosen its ties to its homeland and consider relocating its headquarters abroad if the capital reforms are not scaled back. It could even end in a divisive national referendum.

While Swiss politicians argue that it is only prudent to protect the public coffers from the risk of bank failure, UBS allies lament the “parochial” mindset adopted by some officials.

“UBS only exists because of its global reach,” says Davide Serra, founder of Algebris Investments, a UBS investor. “It will be highly incentivised to relocate if the reforms are not watered down. It cannot compete with the likes of Morgan Stanley if it needs to have twice as much capital.”

How one crisis led to another

The emergency takeover of Credit Suisse was one of the most dramatic moments in European banking since the 2008 financial crisis, ending more than 150 years of rivalry between the two banks.

Scandals and financial losses dating back over a decade pushed Credit Suisse to the brink of collapse before the Swiss authorities, led by finance minister Karin Keller-Sutter, brokered the rescue by UBS in order to prevent a wider market panic.

But the deal sent shockwaves through global finance, in part because regulators wiped out Credit Suisse debt worth $17 billion at face value while allowing equity investors to recover $3.3 billion. This was a reversal of normal practice, where bondholders’ claims rank higher than those of shareholders. The move triggered lawsuits and reignited concerns over Switzerland’s handling of banks considered too big to fail.

By late 2023, Kelleher and Sergio Ermotti — who was brought back for a second stint as UBS chief executive weeks after the Credit Suisse rescue — believed they had quelled political concerns over the takeover. The bank had exited taxpayer-funded government support facilities, put in place as part of the deal, ahead of schedule.

But in April 2024, Keller-Sutter proposed a “too big to fail” reform package, intended to insulate the state from similar problems in future. She suggested it could lead to UBS having between $15 billion and $25 billion of additional capital.

After two years of acrimony, the government laid out its final reform package last month. Although it watered down some parts, it insisted that UBS fully capitalise its foreign subsidiaries so that in a crisis, their losses could be absorbed or their operations unwound without jeopardising the Swiss parent. UBS puts the capital hit at $22 billion.

Ermotti told the FT this month that the proposals were “not proportionate”, “not targeted” and “not internationally aligned” but Switzerland’s Federal Council — its multi-party executive branch — views the reforms as “necessary”, according to a finance ministry spokesperson.

The draft law is now progressing to parliament to be debated, and though the finance ministry says the government is “fully united” on the reforms, Swiss politics is split between those prioritising financial stability and those more concerned about international competitiveness and over-regulation.

The left broadly backs tougher rules for UBS, while the right warns against weakening Switzerland as a financial centre. Centrist parties are likely to emerge as kingmakers in deciding the final compromise.

The finance ministry is prepared to accept some degree of easing during the legislative process, according to people familiar with the matter. But it has also signalled it could revisit other measures if parliament adopts what it considers an overly lenient outcome. Approval is not expected before 2027.

Analysts believe a compromise could allow UBS to use a cheaper form of convertible debt for some of the additional capital required, rather than relying entirely on so-called common equity tier one, or CET1, the most expensive form of bank capital.

These “additional tier one”, or AT1, bonds can convert to equity or be written down if a lender runs into trouble. But because AT1 debt typically absorbs losses after CET1, their holders face less risk — making them a cheaper form of capital.

Analysts have noted the irony that the instrument that could cut down on the cost of capitalisation for UBS — AT1s — is the very same that became synonymous with Credit Suisse’s collapse.

Johann Scholtz, an analyst at Morningstar, says allowing partial use of AT1 debt for UBS’s capital requirements is “still in play and “looks like the most likely compromise”. A cross-party group of lawmakers presented a similar proposal late last year.

But the bruising struggle has already caused UBS investors and others to question whether Switzerland remains the right home for a bank of its size and global scale.

“I have sympathy for UBS,” says a senior executive at a rival European bank. “But it has become too big for Switzerland. It’s that simple.” An executive at another Swiss lender says the country’s government is “slapping down banks to show them who is in charge”, but adds: “It’s an open invitation to get UBS to move headquarters.”

The relocation question

For more than 150 years, the headquarters of UBS and Credit Suisse faced each other across Zurich’s Paradeplatz square, the symbolic home of Swiss finance.

In recent months UBS has used its building to send a message, erecting a billboard declaring that Switzerland and its largest bank were “moving forward together”. It reflects a growing anxiety over whether one of the country’s most storied institutions could one day uproot itself and leave.

Ermotti has publicly played down the prospect of UBS moving its headquarters because of the capital reforms, and recently told the FT that its “focus” was “to ensure that UBS can continue to operate out of Switzerland as a successful bank”. But he added: “It’s a fiduciary duty of the board of directors and management to examine any potential options.”

Led by Kelleher, the board has for more than a year been examining contingency plans that include redomiciling, according to people familiar with the matter.

Investors have become increasingly vocal in pressing UBS’s management to consider a move if the reforms are not eased. Swedish activist investor Cevian Capital, a major UBS shareholder, said last year that the bank would have “no other realistic option” but to leave the country.

The bank has had “incoming” from several governments about relocating, says a person familiar with the matter, but many see the US as the most likely alternative given its lighter regulation and UBS’s ambitions to compete in wealth management with Wall Street rivals like Morgan Stanley.

“If they’re going to make a transformational move, it would have to be to the US,” says Algebris’s Serra. “Going to the EU or UK wouldn’t help much — you would still be subject to populistic pressures.”

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Proponents point to Scandinavian lender Nordea, which shifted its headquarters from Stockholm to Helsinki in 2018 after clashing with Swedish regulators over capital requirements. But Nordea is a regional European lender a fraction of the size of UBS, and even advocates of redomiciling accept that it would involve years of regulatory, legal and political upheaval.

Others are less convinced that the Swiss lender will seriously consider such a drastic move. One person familiar with internal discussions at UBS says relocating is unlikely, adding: “It was a card played way too early and it was delivered as a threat. Had they used it more strategically it could have landed better.”

UBS said that it has “never threatened to leave the country, and it is unacceptable for other parties to continue to suggest that without providing any evidence”.

Morningstar’s Scholz agrees that a move is improbable. “The UBS brand is closely tied to its Swiss heritage and there is a real risk of brand damage from a high-profile exodus,” he says. But the prospect of relocation remains “an effective negotiating tool”.

Ermotti, who had expected to step down next year, once the integration of Credit Suisse was complete, is now preparing for a longer stint at the helm amid the capital fallout. “He’s doing a Jamie,” quips one person who knows Ermotti, referring to JPMorgan’s Dimon, who has led the bank for two decades.

Ermotti and Keller-Sutter have had a fraught relationship ever since the capital reforms were first mooted in 2024. Andreas Venditti, an analyst at Vontobel, says: “I don’t know why this has been so confrontational from the beginning. It’s not helpful.”

One criticism in Switzerland is that UBS did not communicate with the finance ministry sufficiently early to ensure the two sides were aligned.

Beyond the dispute, UBS is performing well. The transfer of 1.2 million former Credit Suisse clients on to its own systems is complete, and profits jumped 80 per cent during the first three months of the year, driven largely by its markets business. “It was remarkable,” says a senior investment banker at a rival lender. “I have no idea how they did so well.”

People close to UBS say it benefited from strong equity markets, since its investment bank focuses more on trading stocks than bonds. Its key wealth management division also attracted fresh client assets, including in the US.

Keller-Sutter has acknowledged that the reform package would make US growth more expensive for UBS. But Ermotti has repeatedly said that “shrinking is not an option”.

Venditti says this means UBS “won’t give up on US ambitions”. Others suggest that a wealth manager in the US is the top item on its takeover wish list.

UBS’s board still sees the 66-year-old as the best person to lead the bank through the uncertainty, but among those regarded as the most likely internal candidates to eventually succeed him are Robert Karofsky, leader of its US business, Iqbal Khan, the co-head of global wealth management alongside Karofsky, and asset management chief Aleksandar Ivanovic.

Potential external candidates mentioned in European banking circles include UniCredit chief executive Andrea Orcel, who previously ran UBS’s investment bank, and Filippo Gori, JPMorgan’s co-head of global banking who formerly ran the Wall Street lender’s European business.

Despite its recent strong operational performance, UBS’s stock price has been weighed down by the capital debate, underperforming the Euro Stoxx Banks index since the reforms were first floated in 2024.

UBS trades at about 1.5 times book value — a standard valuation metric for banks — compared with 2.9 times for Morgan Stanley. Some executives fear a gap this wide could leave the Swiss lender itself vulnerable to a takeover bid.

The end game

The uncertainty hanging over UBS is unlikely to dissipate soon.

Switzerland’s upper house committee did not reach agreement at its first meeting on the capital proposals earlier this month, a delay that reflects divisions even within the more conservative, business-friendly upper chamber, according to people familiar with the discussions.

“This was not a tactic. Lawmakers want to take their time and most believe this is in the best interests of both UBS and the government,” says one parliamentarian. “In my view, we need stricter regulation than the US because we are a smaller market — but we do need to remain competitive.”

Swiss business and trade associations wrote last month to lawmakers urging them “not to weaken the Swiss model of success” by “going it alone internationally” on bank capital rules, adding that companies with global reach give the country economic strength, international independence and political clout.

The spectre of a referendum still looms in the background if opponents of the final legislation gather enough signatories. Under Switzerland’s direct democracy system, a plebiscite can be triggered if 50,000 people sign a petition to challenge a law passed by parliament.

“Opinions across the Swiss electorate are relatively anti-bank, as in many other countries right now,” says Vontobel’s Venditti. “If this goes to referendum it gets tougher for UBS.”

For Kelleher and Ermotti, the capital issue has been unrelenting and a “constant frustration”, says a person who has worked with them. “It’s something they’re never not thinking about. It’s like a splinter — they just can’t leave it.”

Beat Wittmann, chair of Swiss corporate advisory boutique Porta Advisors, describes this next phase as the “final innings of the showdown” between UBS and the government.

“The discourse will be very messy over the next few months as this parliamentary discussion kicks off. Different vested interest groups are lobbying and being loud,” he says. “On top of the whole cheesecake, are two personalities, Keller-Sutter and Ermotti, running a personalised, public fight. I think it will escalate.”

Switzerland spent decades building global banks as symbols of national strength and paragons of stability. Now it is confronting the possibility that its last banking champion may simply have outgrown the country’s ability to save it in a crisis.

“If UBS were to collapse, it would likely bring Switzerland’s economy down with it,” says one European banking executive. “That’s why the government wants to stuff it with capital.”

Copyright The Financial Times Limited 2026