UBS Chief Executive Sergio Ermotti has warned lawmakers against imposing excessively strict capital requirements on the Swiss bank, according to an interview published on September 20 with the Neue Zürcher Zeitung. The warning comes just days before Switzerland's upper house of parliament is set to decide on September 23 how stringent new capital rules should be for UBS following the 2023 collapse of Credit Suisse. UBS subsequently acquired its stricken rival in an emergency takeover engineered by Swiss authorities, creating a banking giant with a balance sheet rivaling Switzerland's entire GDP.
The government has proposed requirements that would force UBS to hold an extra $20 billion in capital to protect taxpayers from another crisis. According to reports from Reuters, Ermotti told the Neue Zürcher Zeitung newspaper that UBS could accept some tightening of the rules but said the government's plan to make the bank back its foreign units with 100% Common Equity Tier 1 capital is excessive. He warned that additional costs would affect customers and employees beyond just shareholders, arguing that Switzerland would be imposing capital standards significantly stricter than those required in other major financial centers, putting UBS at a competitive disadvantage against Wall Street and European rivals who operate under lighter regimes.
A parliamentary committee has floated a compromise that would allow UBS to meet half the foreign units requirement with cheaper Additional Tier 1 capital. As reported by Reuters, UBS calculates it would need to find $13 billion in AT1 capital for this option, which Ermotti described as painful but doable. The AT1 bonds are a cheaper form of capital for banks because they pay interest (unlike equity) but can be written down or converted to equity if the bank hits trouble. During an upper house debate on Thursday, there were signs that some lawmakers are leaning towards a separate compromise that would make UBS cover its foreign units with 90% CET1 capital, which would be considerably dearer for the bank. Ermotti said this option went too far, stating "We can live with a black eye, but two black eyes and a broken nose is too much."
Ermotti's remarks came after UBS Chairman Colm Kelleher has gone further, warning that UBS may reconsider its future in Switzerland entirely if the capital requirements undermine competitiveness. According to Reuters, Ermotti drew a comparison, saying "We can live with a black eye, but two black eyes and a broken nose is too much. Yet that's exactly what the demand for capital backing of 90% or 100% comes down to." The September 23 vote has become a focal point for anyone with exposure to European banking stocks, with the stricter version potentially forcing UBS to raise substantial new equity, diluting existing shareholders, or redirect profits away from distributions and into capital buffers for years. The AT1 compromise, while still costly, would preserve more flexibility and UBS could likely access the European AT1 market without paying punitive rates, as the market has since stabilized since the Credit Suisse rescue.
