Swiss banking giant UBS has confirmed plans to move its headquarters out of Switzerland after Swiss authorities pushed for tougher regulatory capital rules that the bank views as onerous. According to latest reports, the bank has assembled an internal executive group to examine possible scenarios, with the possibility of moving to London resurfacing following discussions between the British government and Swiss major. The Financial Times reported that active merger or acquisition discussions are not underway, but UBS has been expanding its US ambitions, obtaining a US banking licence in March and identifying smaller American banks for potential acquisition. A theoretical merger with Morgan Stanley has also emerged as a possible scenario, with UBS Chairman Colm Kelleher having spent much of his career at the American investment bank.
Swiss lawmakers are grappling with crafting new capital rules for UBS following the 2023 collapse of Credit Suisse, creating what industry observers describe as a difficult balancing act. According to reports from Reuters, a lower house committee will begin debating banking rules on October 26 that management at UBS suggested were intolerable. The upper house decided UBS should back its foreign units with 90% Common Equity Tier 1 (CET1) capital, up from the current 60% buffer that can be partly met with cheaper capital, while the government proposed a 100% CET1 requirement. The requirement could tie up more than USD 20 billion according to the bank's internal estimates.
Major investors have urged UBS to leave Switzerland in search of friendlier regulation, and the bank is drafting potential contingency plans including shifting its headquarters or merging with another lender. However, the cost of leaving or loss of its Swiss identity might be a price the Zurich-based wealth manager is unwilling to pay. As reported by Reuters, UBS has repeatedly said it wants to remain in Switzerland and that its presence there is beneficial to both the bank and the country, while arguing the 90% CET1 proposal is excessive and would damage its competitiveness. Swiss Finance Minister Karin Keller-Sutter, who has championed the regulatory overhaul, said last month that she considered a UBS departure unlikely, citing the financial costs and legal complexities involved.
Parliament faces significant constraints in its rule-making process. According to Reuters, Leo Mueller, a Centre Party lawmaker on the committee, said parliament was in a tricky situation, noting that if they water down the rules too much, there'll be a referendum risk. Finance Minister Karin Keller-Sutter, who has hinted at the possibility of a public referendum, wants parliament to sign off on the 90% CET1 target, while the Social Democrats, who favour 100% CET1 capital, say they will decide whether to seek a referendum once parliament has made its choice, which is not expected before December at the earliest.
Compromises are circulating among lawmakers, with some working to temper the proposals. As reported by Reuters, Hans-Peter Portmann of the centre-right Liberal Party has floated a 75% CET1 capital requirement for UBS's foreign units, combined with a mechanism to bolster its loss-absorbing capacity if capital ratios go below a certain level. FDP lawmaker Olivier Feller, who supports 100% CET1 backing but said his party's stance was still under discussion, suggested the lower house could settle on 90%, noting Switzerland is a small country with a large bank. Other proposals are likely to surface ahead of the full lower house debate expected in December.
The regulatory uncertainty has drawn significant investor attention, with some shareholders saying the proposed rules could suffocate UBS. According to Reuters, Artisan Partners has publicly urged the bank to quit Switzerland over the regulations. However, legal experts suggest UBS may not act irrationally, noting that stability and legal certainty Switzerland offers are not easy to find nowadays. The Parmelin government argues that tighter safeguards are necessary to protect taxpayers from potential losses, particularly given UBS's substantial international operations following its takeover of Credit Suisse. UBS's leadership has increasingly emphasised the potential consequences of the proposed rules, with Kelleher saying the bank might have to reconsider its future in Switzerland if the incoming requirements proved too harsh.
