UBS Group AG is exploring strategic options, including the potential relocation of its headquarters outside Switzerland, as the country implements stricter capital standards for systemically important banks. This comes amid ongoing tensions between UBS and Swiss regulators regarding capital rules following the 2023 rescue of Credit Suisse, as reported by Yahoo Finance, referencing Semafor.
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On September 23, the Council of States approved a measure mandating that systemically important banks maintain Common Equity Tier 1 (CET1) capital equal to 90% of their investments in foreign subsidiaries. UBS is weighing its options in light of this development, including a possible merger with a foreign bank, with Morgan Stanley identified as a potential partner, alongside Standard Chartered and Deutsche Bank.
The proposed regulations arise from Switzerland's reevaluation of its "too big to fail" framework after the Credit Suisse bailout. Previously, Swiss banks were required to provide capital backing for around 60% of their foreign subsidiaries, but the Federal Council has suggested increasing this requirement to 100%. They argue that enhanced capital at Swiss parent banks would offer more flexibility to reorganize or divest foreign operations in times of crisis.
By April 2026, the Federal Council estimated that UBS would need to hold approximately $20 billion of additional CET1 capital under the new 100% requirement. UBS has criticized this proposal, claiming it would be excessive and disadvantageous compared to international competitors. As the discussions progressed, a compromise was proposed by the Economic Affairs and Taxation Committee, which would have allowed part of the capital requirement to be satisfied with AT1 capital, with a minimum of 50% being CET1. However, the Council of States ultimately rejected this compromise, supporting the 90% CET1 stipulation instead.
UBS anticipates that meeting the new 90% requirement will necessitate about $16 billion in additional CET1 capital, in addition to nearly $15 billion already mandated following the acquisition of Credit Suisse and approximately $2 billion from other regulatory changes. This could bring UBS Group's total incremental CET1 capital requirement to around $33 billion, leading to estimated annual costs of about $2.5 billion.
The increased capital requirement could negatively impact UBS' capital efficiency, tying up more shareholder funds against its foreign operations. If earnings do not increase accordingly, these higher capital needs may reduce returns and diminish UBS' competitiveness compared to global firms not subjected to similar regulations.