UBS has voiced concerns about the Swiss government’s approach to introducing bank capital reforms. They argue that the proposed substantial hike in capital requirements has already led to nearly $40 billion in losses for investors.
In a response to the consultation released on Monday, UBS described the capital requirement proposals as “excessive, disproportionate, not internationally consistent and untargeted.”
The ongoing disagreement between Switzerland’s largest banks and the government has persisted for close to two years. The government intends to compel banks to back foreign subsidiaries with an additional $23 billion in common equity Tier 1 capital, which is the priciest type of bank capital.
This measure is being promoted as necessary to mitigate the chances of events similar to the Credit Suisse collapse, which UBS took over during a government-backed rescue in 2023.
UBS noted in its feedback that such proposals could impair its competitiveness compared to global rivals, inflate borrowing costs for clients, and jeopardize its established business model. The bank estimated that the added capital requirements would inflate its annual costs by around $1.7 billion.
Moreover, UBS criticized the government for not thoroughly considering less drastic alternatives that could achieve the same effectiveness but at a lower cost. “The government rejected these alternatives because it doesn’t align with its desire for zero risk tolerance,” UBS commented.
However, in December, a bipartisan coalition of Swiss politicians tabled several compromise ideas that would temper the government’s initial stance. They suggested allowing UBS to utilize additional Tier 1 debt to cover half of its foreign arms’ capital, thus easing the overall capital burden.
Last week, the right-wing Swiss People’s Party, which holds a dominant position in parliament, expressed support for this compromise, suggesting that a resolution could be imminent. Their proposal described the government’s plans as “disproportionate” and raised concerns about the isolated nature of some banking reforms.
Since any reforms affecting foreign subsidiaries need parliamentary approval, securing legislative backing is crucial. Discussions on the bill are anticipated to commence later this year.
The centrist FDP, led by Finance Minister Karin Keller-Sutter, also backs this compromise. Keller-Sutter has been a key proponent of the reform initiative.
Additionally, in a different submission on Monday, the Swiss Bankers Association cautioned the government against a “reckless” intensification of capital controls beyond global standards, labeling the proposals as disproportionate and inconsistent with international practices, warning that they could harm Switzerland’s competitiveness without providing substantial enhancements to financial stability.
The debate surrounding UBS’s capital situation has negatively impacted the bank’s stock price as well. UBS indicated that the prevailing uncertainty could cause its market value to dip 27% below that of other European and U.S. banks between April 2024 and the end of the previous year—amounting to about $37 billion in losses for investors, which the bank characterized as “significant value destruction for UBS shareholders in addition to the costs involved in integrating Credit Suisse.”
The Swiss government contends that the intently proposed reforms, which comprise other initiatives to bolster UBS’s capital quality, will significantly diminish the likelihood of another serious crisis at the country’s critical bank.
Yet, as other major financial hubs reduce regulatory pressures, UBS underscored on Monday that the increased capital costs would hinder its international competitiveness. “These proposals would lead to significantly stricter requirements and stand in stark contrast to shifts in Europe and the U.S., where deregulation is already underway,” UBS remarked.
Reports have surfaced regarding UBS contemplating a move of its headquarters to the US if the capital demands are not relaxed.
