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2 days ago
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UBS shares slide 7% after analysts say Swiss capital rules put buybacks at risk
By Tommy Reggiori Wilkes LONDON (Reuters) -Shares in UBS dropped 7% on Tuesday as analysts voiced concern about the impact of new government proposals to force the Swiss lender to hold $26 billion in extra capital, including on the bank's plans to return cash to shareholders. UBS' stock had risen after the government on Friday announced its proposals to prevent another Credit Suisse-style meltdown. But on Tuesday the shares reversed those gains and fell sharply. By 1235 GMT they were down 6.6% at 26 francs, set for their biggest one-day drop in two months. Swiss markets were closed on Monday. The bank's capital returns to investors for 2026 and beyond remain uncertain, Deutsche Bank analysts said in a note, even as UBS on Friday reaffirmed its intention to return $3 billion in capital this year. Traders also cited worries about the impact on UBS's buyback plans as a reason for the share price fall. JP Morgan analysts said they had already lowered their buyback estimates to $3.5 billion from $6 billion for next year, and to $4 billion from $8 billion in 2027, because the Swiss proposals were the "worse-case scenario". "We are thus already pricing the worst case scenario, leaving upside from any improvement in the final rules. We think with the share price reaction today, UBS shares have priced these proposals more than enough," they said on Tuesday. Others disagreed about the likely impact on buybacks. UBS should be able to manage the extra capital demands without affecting future buybacks and dividends, Citi analysts said. But they were worried about the rules being amended as they move through a consultation and legislative process, and about UBS' consensus earnings momentum, "which continues to be weaker than peers on ongoing NII (net interest income) softness." Uncertainty over the capital requirements have clobbered UBS shares. So far this year the stock has lost nearly 9%, against a 30% rally in a European banking share index. While the government proposals confirmed some of UBS' worst fears, the bank will have six to eight years to prepare for them becoming law, a time in which the rules may change. UBS executives say the additional capital burden will put the Zurich-based bank at a disadvantage to rivals and on Friday called the requirements "extreme" and "neither proportionate nor internationally aligned." Switzerland's Finance Minister Karin Keller-Sutter said the measures were crucial for financial stability and would protect taxpayers. (Additional reporting by Danilo Masoni in Milan and Siddarth S in Bengaluru; Editing by Amanda Cooper and Hugh Lawson)
Yahoo
4 days ago
- Business
- Yahoo
UBS Capital Requirements Rise Following Switzerland's Proposal
Switzerland's Federal Department of Finance ('FDF') has proposed stricter rules for UBS Group AG UBS following its takeover of Credit Suisse. The move has been attempted to reduce the risks of another Credit Suisse-style Swiss government has proposed that UBS should fully capitalize its foreign subsidiaries, up from the current 60% threshold. This will require UBS to increase its common equity tier-one capital by up to $26 bank will be allowed to reduce its Additional Tier 1 (AT1) bond holdings by $8 billion. Still, this will result in a net increase of $18 billion in FDF stated, 'The Credit Suisse crisis made it clear that the Swiss parent bank's capital base was insufficient. The implementation of the package of measures is intended to substantially reduce the likelihood that another systemically important bank in Switzerland will get into a severe crisis, and that emergency measures by the state will be required.'Per the FDF, this estimate assumed no change in UBS's balance sheet size, risk-weighted assets or its potential use of mitigation said it 'strongly disagrees with the extreme increase in capital requirements that has been proposed. These changes would result in capital requirements that are neither proportionate nor internationally aligned.'Notably, the 'too big to fail' proposals (still subject to parliamentary approval) have come after the Swiss financial regulator granted capital relief to Credit Suisse in 2017, allowing the bank to inflate the value of its foreign the new capital proposals will be put out for consultation before being submitted to the the FDF, the proposed reforms will not become law before 2028, and UBS will be given a six to eight-year transition period to implement the changes once the legislation comes into force. UBS took over its rival Credit Suisse in a state-sponsored rescue in then, UBS has been facing challenges and legal claims, which is increasing costs. Last month, UBS agreed to pay $511 million to resolve a tax probe by the U.S. Department of Justice against Credit Suisse for preparing false income tax returns and tax UBS is on track to substantially complete the integration of Credit Suisse by the end of 2026 and, hence, achieve the targeted cost the first quarter of 2025, UBS completed consolidating its branch network in Switzerland, merging 95 branches since the July 2024 merger with Credit Suisse. The company is initiating its Swiss business migrations and aims to complete the migrations by the first quarter of the first quarter of 2025, UBS realized an additional $0.9 billion in gross cost savings. Cumulative gross cost savings at the end of the first quarter of 2025 amounted to $8.4 billion compared with the 2022 combined cost base of UBS and Credit Suisse. This represents around 65% of its ambition to deliver $13 billion in annualized exit rate gross cost savings by the end of 2026. Over the past six months, UBS shares have gained 6.1% compared with the industry's growth of 23.1%. Image Source: Zacks Investment Research Currently, UBS carries a Zacks Rank #3 (Hold). A couple of better-ranked peer stocks are Deutsche Bank Aktiengesellschaft DB and Mitsubishi UFJ Financial Group, Inc. MUFG, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks estimates for DB for the current year have been revised 4.2% upward over the past 60 days. Over the past six months, DB shares have soared 57.7%.MUFG's current fiscal-year earnings estimates have been revised 4.6% higher over the past 60 days. MUFG shares have gained 16.5% over the past six months. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Deutsche Bank Aktiengesellschaft (DB) : Free Stock Analysis Report UBS Group AG (UBS) : Free Stock Analysis Report Mitsubishi UFJ Financial Group, Inc. (MUFG) : Free Stock Analysis Report This article originally published on Zacks Investment Research ( Zacks Investment Research Sign in to access your portfolio
