UBS capital loss puts radical options on the table

UBS AG

23/09/2026 11:17

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Liam  Proud
LONDON, Sept 23 (Reuters Breakingviews) - The Swiss political establishment is attempting to call Colm Kelleher's bluff. The UBS UBSG.S chair has not-so-subtly indicated that he could move the $155 billion bank out of its home country if lawmakers force him to fully fund foreign subsidiaries with common equity Tier 1 capital, which the government deems necessary to prevent another Credit Suisse-style failure. On Wednesday, the Swiss upper house voted in favour of roughly that outcome, dealing a severe blow to Kelleher's chances of getting a political compromise. Previously outlandish possibilities now seem less so.
Technically, lawmakers opted for 90% CET1 backing rather than the government's proposed 100%. It doesn't make much difference from the perspective of Kelleher and UBS, which described both options as weakening "the long-term viability of the bank’s business model". The bank said in a statement on Wednesday that 90% backing would equate to an extra $18 billion of required extra CET1, including other proposed changes, which compares with earlier estimates of $22 billion under the government's original plan.
The drag on returns looks similar. RBC analysts calculate that 100% CET1 backing would reduce UBS' 2028 return on tangible equity by 3.1 percentage points relative to the broker's baseline forecast, versus a 2.7 percentage point hit for the 90% CET1 option. A meaningful compromise would have been the 50-50 split between CET1 and funky hybrid debt, which a parliamentary committee recently recommended. That option seems almost dead after Wednesday's vote.
The question now is what Kelleher and his CEO Sergio Ermotti do about it. Shrinking or selling the foreign subsidiaries, including a large US wealth management and investment banking business, is probably not realistic. It would violate UBS' global growth strategy.
Another possibility is staying put in Switzerland and swallowing the higher capital. Citigroup analysts reckon UBS' de facto group CET1 ratio would be around 16% under the upper house's plan. That's not too far off where Morgan Stanley MS.N will end the year, based on broker forecasts gathered by Visible Alpha. Meanwhile, many Nordic banks manage to combine high capital ratios with high returns and valuations.
Yet Morgan Stanley's elevated CET1 level is a choice which affords large headroom over its minimum. UBS' equivalent would be compulsory and offer minimal buffers relative to requirements. And the Nordic analogy is dubious: those lenders don't compete in global investment banking and other cutthroat areas, where UBS' relatively high CET1 requirement could affect its competitiveness. Activist investor Cevian Capital, which owns a stake in UBS, has argued that it would not be viable to run a large international bank from Switzerland under the proposed rules.
By process of elimination, the outlandish options therefore start to look plausible. One path could be to move UBS to New York or London. Another would be to break the company up, leaving the Swiss domestic business behind. It's even conceivable that a rival like Morgan Stanley could pounce: buying UBS would unlock giant capital savings by avoiding the new Swiss foreign-subsidiary capital rules. 
Lawmakers' aggression may be based on an assumption that Kelleher won't break the glass on these nuclear options. That may not be correct.
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CONTEXT NEWS
Switzerland's upper house of parliament on September 23 voted in favour of capital rules that would require UBS to back its foreign units with 90% common equity Tier 1 capital. 
The capital rules bill, part of measures drawn up following the 2023 collapse of Credit Suisse, will now move to the lower house, with a final decision expected at the end of this year at the earliest, and more likely in 2027.
The government had proposed making UBS back its foreign units with 100% CET1 capital, a demand that UBS said was excessive and likely to make it less competitive.
The upper house narrowly rejected the government's plan before backing the 90% CET1 capital option over a more moderate proposal agreed last month by an upper house committee to allow UBS to back foreign units with 50% CET1 capital and 50% additional Tier 1 (AT1) capital.
UBS CEO Sergio Ermotti said on Tuesday the 90% CET1 plan was no real compromise and urged support for the AT1 option.
In a recent edition of the Neue Zuercher Zeitung newspaper, Ermotti said excessive capital requirements would end up being borne not just by shareholders but also customers and employees.
"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," he said.
UBS shares were up 1% to 40.78 Swiss francs as of 0851 GMT on September 23.

(Editing by George Hay; Production by Streisand Neto)
((For previous columns by the author, Reuters customers can click on PROUD/liam.proud@thomsonreuters.com))