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2 days ago
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Analysis-Shaken by crises, Switzerland fetters UBS's global dream
By Ariane Luthi and John O'Donnell BERN (Reuters) -Switzerland announced reforms on Friday to make its biggest bank UBS safer and avoid another crisis, hampering the global ambitions of a lender whose financial weight eclipses the country's economy. UBS emerged as Switzerland's sole global bank more than two years ago after the government hastily arranged its rescue of scandal-hit Credit Suisse to prevent a disorderly collapse. The demise of Credit Suisse, one of the world's biggest banks, rattled global markets and blindsided officials and regulators, whose struggle to steer the lender as it lurched from one scandal to the next underscored their weakness. On Friday, speaking from the same podium where she had announced the Credit Suisse rescue in 2023 as finance minister, Switzerland's president Karin Keller-Sutter delivered a firm message. The country would not be wrongfooted again. "I don't believe that the competitiveness will be impaired, but it is true that growth abroad will become more expensive," Keller-Sutter said of UBS. "We've had two crises. 2008 and 2023," she said. "If you see something that is broken, you have to fix it." During the global financial crisis of 2008, UBS was hit by a losses in subprime debt, as a disastrous expansion into riskier investment banking forced it to write down tens of billions of dollars and ultimately turn to the state for help. Memories of that crisis also linger, reinforcing the government's resolve after the collapse of Credit Suisse. For UBS, which has a financial balance sheet of around $1.7 trillion, far bigger than the Swiss economy, the implications of the reforms proposed on Friday are clear. Switzerland no longer wants to back its international growth. "Bottom line: who is carrying the risk for growth abroad?" said Keller-Sutter. "The bank, its owners or the state?" The rules the government proposed demand that UBS in Switzerland holds more capital to cover risks in its foreign operations. That move, one of the most important steps taken by the Swiss in a series of otherwise piecemeal measures, will make UBS's businesses abroad more expensive to run for one of the globe's largest banks for millionaires and billionaires. Following publication of the reform plans, UBS Chairman Colm Kelleher and CEO Sergio Ermotti said in an internal memo that if fully implemented, they would undermine the bank's "global competitive footprint" and hurt the Swiss economy. STRATEGY The reform would require UBS to hold as much as $26 billion in extra capital. Some believe the demands may alter the bank's course. "It could be that UBS has to change its strategy of growth in the United States and Asia," said Andreas Venditti, an analyst at Vontobel. "It's not just growing. It makes the existing business more expensive. It is an incentive to get smaller and this will most likely happen." Credit Suisse's demise exploded the myth of invincibility of one of the wealthiest countries in the world, home to a global reserve currency, and proved as unworkable a central reform of the financial crisis to prevent state bailouts. For many in Switzerland, the government's reforms are long overdue. "The bank is bigger than the entire Swiss economy. It makes sense that it should not grow even bigger," said Andreas Missbach of Alliance Sud, a group that campaigns for transparency. "It is good that the government did not give in to lobbying by UBS. The question is whether it is enough. We have a banking crisis roughly every 12 years. So I'm not really put at ease." UBS CEO Ermotti had lobbied against the reforms, arguing that a heavy capital burden would put the bank on the back foot with rivals. The world's second-largest wealth manager after Morgan Stanley is dwarfed by its U.S. peer. Morgan Stanley shares value the firm at twice its book value, compared with UBS's 20% premium to book. On Friday, the bank reiterated this message, saying that it strongly disagreed with the "extreme" increase in capital. But others are sceptical that the government has done enough. Hans Gersbach, a professor at ETH Zurich, said there was still no proper plan to cope should UBS run into trouble. "The credibility of the too big to fail regime remains in question." (Additional reporting by Dave Graham and Oliver Hirt in Zurich; Writing By John O'Donnell; editing by David Evans)
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2 days ago
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Analysis-Shaken by crises, Switzerland fetters UBS's global dream
By Ariane Luthi and John O'Donnell BERN (Reuters) -Switzerland announced reforms on Friday to make its biggest bank UBS safer and avoid another crisis, hampering the global ambitions of a lender whose financial weight eclipses the country's economy. UBS emerged as Switzerland's sole global bank more than two years ago after the government hastily arranged its rescue of scandal-hit Credit Suisse to prevent a disorderly collapse. The demise of Credit Suisse, one of the world's biggest banks, rattled global markets and blindsided officials and regulators, whose struggle to steer the lender as it lurched from one scandal to the next underscored their weakness. On Friday, speaking from the same podium where she had announced the Credit Suisse rescue in 2023 as finance minister, Switzerland's president Karin Keller-Sutter delivered a firm message. The country would not be wrongfooted again. "I don't believe that the competitiveness will be impaired, but it is true that growth abroad will become more expensive," Keller-Sutter said of UBS. "We've had two crises. 2008 and 2023," she said. "If you see something that is broken, you have to fix it." During the global financial crisis of 2008, UBS was hit by a losses in subprime debt, as a disastrous expansion into riskier investment banking forced it to write down tens of billions of dollars and ultimately turn to the state for help. Memories of that crisis also linger, reinforcing the government's resolve after the collapse of Credit Suisse. For UBS, which has a financial balance sheet of around $1.7 trillion, far bigger than the Swiss economy, the implications of the reforms proposed on Friday are clear. Switzerland no longer wants to back its international growth. "Bottom line: who is carrying the risk for growth abroad?" said Keller-Sutter. "The bank, its owners or the state?" The rules the government proposed demand that UBS in Switzerland holds more capital to cover risks in its foreign operations. That move, one of the most important steps taken by the Swiss in a series of otherwise piecemeal measures, will make UBS's businesses abroad more expensive to run for one of the globe's largest banks for millionaires and billionaires. Following publication of the reform plans, UBS Chairman Colm Kelleher and CEO Sergio Ermotti said in an internal memo that if fully implemented, they would undermine the bank's "global competitive footprint" and hurt the Swiss economy. STRATEGY The reform would require UBS to hold as much as $26 billion in extra capital. Some believe the demands may alter the bank's course. "It could be that UBS has to change its strategy of growth in the United States and Asia," said Andreas Venditti, an analyst at Vontobel. "It's not just growing. It makes the existing business more expensive. It is an incentive to get smaller and this will most likely happen." Credit Suisse's demise exploded the myth of invincibility of one of the wealthiest countries in the world, home to a global reserve currency, and proved as unworkable a central reform of the financial crisis to prevent state bailouts. For many in Switzerland, the government's reforms are long overdue. "The bank is bigger than the entire Swiss economy. It makes sense that it should not grow even bigger," said Andreas Missbach of Alliance Sud, a group that campaigns for transparency. "It is good that the government did not give in to lobbying by UBS. The question is whether it is enough. We have a banking crisis roughly every 12 years. So I'm not really put at ease." UBS CEO Ermotti had lobbied against the reforms, arguing that a heavy capital burden would put the bank on the back foot with rivals. The world's second-largest wealth manager after Morgan Stanley is dwarfed by its U.S. peer. Morgan Stanley shares value the firm at twice its book value, compared with UBS's 20% premium to book. On Friday, the bank reiterated this message, saying that it strongly disagreed with the "extreme" increase in capital. But others are sceptical that the government has done enough. Hans Gersbach, a professor at ETH Zurich, said there was still no proper plan to cope should UBS run into trouble. "The credibility of the too big to fail regime remains in question." (Additional reporting by Dave Graham and Oliver Hirt in Zurich; Writing By John O'Donnell; editing by David Evans) Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
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2 days ago
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Switzerland hits UBS with $26 billion added capital requirement; shares rise
By Ariane Luthi and Oliver Hirt BERN (Reuters) -The Swiss government on Friday proposed stricter rules for UBS following its takeover of Credit Suisse, which could make it hold $26 billion more in core capital, confirming some of the bank's worst fears about incoming new regulations. The key proposal, which the bank would have six to eight years to prepare for after it became law, is that UBS must fully capitalise its foreign units, confirming what many analysts, lawmakers and executives had been expecting. UBS shares, which have lagged European peers amid uncertainty about the new rules, jumped after the proposals were made public on Friday afternoon, rising by more than 6% and on track for their best day since May 2024. The government said its capital requirement proposal would allow UBS to reduce its holding of Additional Tier 1 (AT1) bonds by $8 billion. Today, UBS must only 60% capitalise its foreign units and can cover some of the capital with AT1 debt. UBS executives say the additional capital burden will put the Zurich-based bank at a disadvantage to rivals and undermine the competitiveness of Switzerland as a financial centre. Such was the shock in Switzerland over the 2023 collapse of Credit Suisse that top politicians led by Finance Minister Karin Keller-Sutter vowed to introduce more robust rules that would protect taxpayers and prevent another meltdown in future. Keller-Sutter now holds Switzerland's rotating one-year presidency and Friday's announcement will start a long period of political wrangling over the measures, which the governing federal council called "targeted and proportionate." "They strengthen trust in the financial centre, which, in the view of the federal council, is central to its stability and competitiveness," the council said in a statement. A parliamentary inquiry last year noted that since UBS bought Credit Suisse for 3 billion Swiss francs ($3.65 billion) in March 2023, it has had a balance sheet bigger than the Swiss economy, and urged the government to take the foreign units into account. The federal council said it would present drafts on the proposals for consultations with stakeholders in the second half of 2025. Finance Ministry officials say laws requiring parliamentary approval will not enter force before 2028. Separate measures known as ordinances that can be issued directly by the government could apply from the start of 2027. A six to eight-year transition period looked appropriate for UBS to meet new rules on capitalising foreign units from when they come into force, the government said. That could give the bank until the mid-2030s to comply. POSSIBLE TARGET? Sources inside the bank have warned the new regulations could make UBS an appealing takeover target. Under the Swiss proposals, UBS's Common Equity Tier 1 (CET1) capital ratio could end up somewhat higher than those of global rivals, the government said. UBS's CET1 ratio of 14.3% could rise up to 17%, above rivals like JPMorgan at 15.8%, Morgan Stanley at 15.7%, and 15.3% at Goldman Sachs, it said. Shares in UBS rose more than 60% in the 12 months following its acquisition of Credit Suisse. But the stock has since sharply underperformed; UBS shares have lost about 5% in the past year, while a top European banking index climbed 37%. Analysts say the new regulations could trigger a rejig of UBS's business model, which now focuses on growth in the United States and Asia. To take the edge off the rules, the bank may be tempted to sell some assets, banking experts say. The Swiss government also set out piecemeal reforms to bolster the market regulator FINMA, which was heavily criticised for its response to the Credit Suisse collapse. These include measures aimed at holding bankers to account, giving the regulator the power to impose fines and making it easier to restrain pay and claw back bonuses. Still, the proposals come years after the European Union introduced similar measures in the wake of the 2007-2009 financial crisis. The government also proposed making it easier for banks to access liquidity from the Swiss National Bank. Barriers to transferring collateral to the SNB will also be removed. ($1 = 0.8222 Swiss francs) Sign in to access your portfolio
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5 days ago
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Switzerland poised to pitch tough new capital rules for UBS
By Ariane Luthi and Oliver Hirt ZURICH (Reuters) -The Swiss government is this week widely expected to propose tough new capital rules for UBS following the 2023 collapse of its rival Credit Suisse, ushering in a long battle in parliament over the closely watched regulations. UBS acquired Credit Suisse at a knock-down price in March 2023, and shock over the demise of Switzerland's second-biggest bank after a string of scandals sparked a chorus of calls to toughen regulations so there could be no repeat meltdown. Central to these so-called "too big to fail" plans sketched out by the government last year is the degree to which UBS should capitalise its foreign subsidiaries to mitigate risk. That question should be answered on Friday when the government presents its proposals. Analysts, lawmakers and the bank itself expect the rules will demand UBS fully capitalise the units - despite the bank's opposition. "The market would be surprised if the federal cabinet did not demand 100% capitalisation of foreign units," said Vontobel analyst Andreas Venditti, pointing to comments by regulators and how UBS shares are undervalued vis-a-vis competitors. According to the bank's own calculations, full capitalisation of the foreign subsidiaries would require UBS finding upwards of $20 billion in additional capital. UBS argues that such a burden would put the Zurich-based lender at a disadvantage against rivals and undermine Switzerland's competitiveness as a global financial centre. "The winners will be our competitors outside Switzerland," UBS CEO Sergio Ermotti told an event near Lucerne last month. "Those guys are just waiting for the nonsense to happen." But the Swiss National Bank and financial market regulator FINMA, both of which drew fire for their response to the Credit Suisse meltdown, have backed full capitalisation of the units. UBS has floated concessions to avert such an outcome and has examined a host of scenarios, including moving its headquarters abroad. However, executives say it is not planning that. Many of the lawmakers, UBS sources and analysts Reuters spoke to for this story believe the regulations will likely be diluted during the legislative process. Final legislation for the new rules is expected in 2027 at the earliest. REALIGNMENT The new Swiss regulations could trigger a realignment of UBS's business model, which is currently geared around growth in the United States and Asia, investors say. "UBS will have to switch into a cost optimisation, risk-weighted assets optimisation mode rather than a growth mode," said Antonio Roman, portfolio manager at Axiom Alternative Investments. If UBS had to fully capitalise its foreign units it would have a required CET1 ratio of 17 to 19%, according to the bank's own calculations. That compares with 2024 requirements on competitors Deutsche Bank of 11.2% and Morgan Stanley of 13.5%. A parliamentary inquiry noted that since the Credit Suisse takeover, UBS has had a balance sheet bigger than the Swiss economy and urged the government to give suitable consideration to the foreign units of globally relevant banks. "The issue in Switzerland is far more important given the nature of UBS and the size of the U.S. subsidiary relative to the parent bank," Neil Esho, Secretary General of the Basel Committee on Banking Supervision, recently told Reuters. Once new rules are set, the bank will likely have a phase-in period to adjust, and full compliance should not be required until the 2030s, banking experts say. "The adjustment can't be done all at once," said Hans Gersbach, a banking and economics professor at ETH Zurich university. "Otherwise it's more destabilising than stabilising." Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
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02-05-2025
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Basel boss signals 'Swiss finish' to capital rules is not unfair on UBS
By Ariane Luthi and Oliver Hirt ZURICH (Reuters) -The head of the world's banking watchdog said Switzerland's existing rules on bank capital do not unfairly penalise its lenders versus rivals elsewhere, pushing back on arguments UBS has made to oppose government plans to toughen them up. Under Swiss proposals to make banks hold more capital to make them safer following the 2023 collapse of Credit Suisse, UBS has estimated it could need $40 billion in additional capital compared to where it stood before the emergency takeover of its former rival. Neil Esho, Secretary General of the Basel Committee on Banking Supervision, told Reuters that it was misleading to focus solely on headline capital requirements when Swiss rules allowed for more flexibility than other jurisdictions regarding which financial instruments could count as capital. The Swiss regulation also permits capital held in subsidiaries to contribute to the parent bank's requirement, enabling a possible double counting of capital that Basel rules caution against, Esho added. "The higher number is not necessarily more resilient once you take into account the quality of capital," Esho said in an interview. "I wouldn't buy the argument that Swiss banks are necessarily being disadvantaged relative to other banks." At UBS' AGM last month, Chairman Colm Kelleher said the bank is already hampered by the existing regulatory "Swiss Finish" - the specific implementation by Switzerland of international standards. "Adding another Swiss Finish on top – while other financial centres are easing regulations – would harm UBS, the Swiss financial centre and the broader economy," he said. Esho, in a speech in January, said he favoured quality of capital over quantity while briefly mentioning Switzerland, but the comments to Reuters are his most explicit yet and will feed into the debate ahead of the Swiss government formally proposing new capital rules in June. Esho also stressed that it was not his place to advise on what governments should do. The Basel Committee, which sets global minimum requirements for banking supervision, revised its standards after the 2007-2009 financial crisis. The European Union, Britain and the United States have recently delayed the roll-out of Basel III, the latest iteration, increasing the concerns of UBS executives that Switzerland will be imposing uncompetitive demands. But Esho said he expected major financial centres would all implement Basel III eventually. MORE CAPITAL UBS had to hold 14.82% of risk-weighted assets as Tier 1 capital last year, more than Deutsche Bank's 13.20%, but below U.S. rival Morgan Stanley's 15%. Analysts say the enlarged UBS will need to hold more capital even before changes to existing rules - Autonomous analyst Stefan Stalmann estimates a ratio of 16.27% by 2030. Under an "extreme" form of regulation, UBS's Tier 1 ratio could climb to 22.4% by then, the bank recently told lawmakers. However, Esho pointed to Swiss rules that allowed, for example, a higher share of Additional Tier 1 bonds rather than core equity Tier 1 capital compared to other jurisdictions. The supervisor also appeared to support the Swiss government's plans requiring UBS to hold more capital in Switzerland. The Basel Committee framework was designed to ensure that banks had enough capital over the whole consolidated group, Esho said. "What it won't do is ensure that you have capital where you need it in a legal entity," he added. "The issue in Switzerland is far more important given the nature of UBS and the size of the U.S. subsidiary relative to the parent bank." Sign in to access your portfolio
