The collapse of Credit Suisse in 2023 marked a turning point. Now with a single global banking institution, Switzerland is determined to avoid a repeat of the fiasco at all costs. Pressure is therefore mounting on the giant, now even more systemic, to maintain stricter capital ratios.
But UBS also fears another kind of downfall: that of the country's financial competitiveness. Sergio Ermotti, Group CEO, did not mince his words in an internal memo dated March 19: "I did not expect that the main obstacle to the success of this operation would come from the same authorities who asked us to take up the Credit Suisse challenge." The message is clear: too much regulation could push the bank to consider its future... elsewhere.
The equation is a delicate one. UBS makes most of its profits in wealth management, a prestigious but also coveted business. Excessively high capital requirements could damage its share price and make it a prey for the big names on Wall Street, such as Morgan Stanley, JPMorgan Chase and Goldman Sachs, according to sources familiar with the discussions.
Concessions in sight
To avoid having to raise more than $40bn in capital - a sum that Swiss regulator FINMA would like to see aligned to cover 100% of foreign risks, compared with 60% at present - UBS is rolling out a plan of concessions. These include capping investment banking at around 30% of total business. This division, which is more exposed to market risks via trading and mergers & acquisitions, remains in the sights of regulators.
A return to modesty, in short: by the end of 2024, this division will account for just 21% of risk-weighted assets, a far cry from the two-thirds reached in 2008, the black year when UBS had to be rescued by the public authorities. In Berne, memories are still fresh.
Another potential gesture: a strengthening of equity capital. UBS, which already expects to have to raise up to $19bn after absorbing Credit Suisse and complying with new international standards, would be prepared, Reuters has learned, to add another $5bn - a far cry, however, from FINMA's ambitions.
A spokesman for the bank was keen to point out that "UBS is already one of the best capitalized banks in the world", while saying he was in favor of stability measures, provided they were not excessive.
The Swiss government is due to publish an estimate of capital requirements under the future regulatory regime in May. But the process promises to be lengthy: final adoption could drag on until 2028, or even beyond.
In the meantime, UBS is pulling out all the stops. Behind the scenes, lobbying is intensifying. Certain scenarios, such as a symbolic transfer of the head office abroad, are being considered - more as leverage than as a real exile project, according to two sources close to the matter.
But not everyone is giving in to this rhetoric. Franziska Ryser, a Green politician and member of the Economy Committee, is trying to calm things down: "There won't be any extreme rules. An appropriate solution will be found. A diplomatic way of telling UBS: there's no need to threaten to pack its bags. The discussion has only just begun.
With Reuters
