A German sign written on May 5, 2025, “Part of the UBS Group” in Basel.
Fabriscofini | AFP | Getty Images
On Friday, the Swiss government proposed strict new capital restrictions on banking giant UBS following the 2023 acquisition of rival Credit Swiss.
This measure could mean that UBS should hold an additional $26 billion in core capital and implement a smaller share buyback.
“To reduce the holdings of AT1 bonds to approximately US$8 billion, the increase in Going Concern requirements must be met with CET1 capital of up to US$26 billion,” the government said in a statement Friday, referring to UBS’s holdings of additional tier 1 (AT1) bonds.
UBS is fighting a more stringent capital rule scoring to cut down the country’s second-largest bank after years of strategic errors, mismanagement and scandals at Credit Suisse.
Also, the shocking end of the banking giant is perceived as the ultimate timing for the rare oversight of the bank and its intervention, causing Swiss financial regulator Finma to be on fire.
Swiss regulators argue that UBS must have stronger capital requirements to protect the national economy and financial system, given that banks’ balances exceeded $1.7 trillion in 2023, nearly doubled Swiss economic output last year. UBS argues that “it’s not too big to fail” and that additional capital requirements (which are set to emit cash liquidity) will affect the competitiveness of banks.
At the heart of the standoffs is concern about UBS’s ability to mitigate future losses in foreign units.
Higher capital requirements can cut down the bank’s balance sheet and credit supply by strengthening lenders’ financing costs and suffocating their willingness to lend, and reduce their appetite for risk. For shareholders, what is noteworthy is the potential impact on discretionary funds available for distribution, such as dividends, share buybacks, and bonus payments.
“Credit Suisse’s legacy business needs to free up capital and reduce UBS costs, but many of these benefits could be absorbed into the demands of stricter regulations,” said in a memo ahead of the announcement of FINMA, senior equity analyst at MoningStar.
“Such measures will far outweigh UBS’ capital requirements and reduce the prospect of putting pressure on returns and narrowing down the long-term valuation gap. Even the long-standing premium valuation associated with the European banking sector has recently evaporated.”
The outlook for the broader presence of the US by Swiss Capital Rules and UBS’s core global wealth management divisions is because White House trade tariffs already focus on the bank’s fate. With a dramatic twist, the bank lost its crown in mid-April as the most valuable lender in continental Europe due to its market capitalization to the huge Santander of Spain.
