In a process that revives memories of the way bank regulation was addressed after 2008, financial regulators in Switzerland want to impose new capital regulations on the country's largest bank. At issue is whether UBS will be out of line with its commercial rivals.

UBS said late Friday afternoon that it broadly supports proposed Swiss federal government regulatory proposals to guard against shocks, but also “strongly disagrees” with what it calls an “extreme” proposed hike in capital requirements. 

Switzerland’s largest bank said measures would put it out of line with international standards – potentially giving rivals a competitive edge. More than two years ago, UBS acquired scandal-hit rival Credit Suisse in an emergency deal at the behest of Swiss authorities. The saga revived memories of the 2008 financial crisis. US-based Silicon Valley Bank also went under in the spring of 2023, and was rescued by the US federal government, with First Citizens Bank taking it over subsequently. JP Morgan acquired First Republic in a similar deal after the latter hit financial trouble.

Regulators are keen to avoid a repeat of the experience. Switzerland now has one universal bank, making UBS "too big to fail."

Swiss capital rule changes could mean that UBS would have to hold $24 billion more Common Equity Tier 1 capital on a pro-forma basis, adding to CET1 changes it has already communicated, taking such capital it must hold to $42 billion. (CET1 capital is a shock absorber against a market crash, and the ways it is set and calculated have changed before and after the 2008 crisis.)

In a statement issued after the Swiss stock market closed on Friday, UBS said proposed capital regulations would “result in capital requirements that are neither proportionate nor internationally aligned.”

“The proposals would require UBS to fully deduct investments in foreign subsidiaries from its CET1 capital. UBS would also need to fully deduct deferred tax assets on temporary differences (TD DTAs) and capitalised software from its CET1 capital. Furthermore, the proposals would necessitate an increase in prudential valuation adjustments (PVAs),” UBS said. 

The Swiss Financial Market Supervisory Authority (FINMA) said it supported the federal government’s “parameters” of proposed rules, but did not specifically mention UBS’s complaint. 

“FINMA supports the parameters presented by the Federal Council for the preparation of the draft consultation on amendments to the Banking Act. In particular, it supports the planned new statutory powers for FINMA in the areas of corporate governance, early intervention, recovery and resolution, as well as the introduction of higher capital requirements for systemically important banks with subsidiaries abroad. The proposed measures are key to strengthening the resilience of banks in the event of a crisis and thus the stability of the financial system,” it said.

The proposals have been in the works for some time, and UBS has previously warned it could be hit. While riding the wave of a rising level of wealth in regions such as Asia, the bank also, like its peers, faces continued regulatory costs, demands for more technology, and uncertainties of the global economic and geopolitical climate. As reported in April last year, the Federal Council wants systemically important Swiss banks – such as UBS – to hold significantly more capital against their foreign units. UBS, Raiffeisen Group, Zürcher Kantonalbank and PostFinance are deemed systemically important lenders.

Capital increase
UBS said that based on published financial information from the first quarter of 2025 and given UBS’s target CET1 capital ratio of between 12.5 per cent and 13 per cent, UBS would have to hold an additional estimated CET1 capital of around $24 billion on a pro-forma basis, if the recommendations were implemented as proposed. This includes around $23 billion related to the full deduction of UBS AG’s investments in foreign subsidiaries, it said. These pro-forma figures also reflect previously-announced expected capital repatriations of around $5 billion.

As a result, UBS would have to achieve a CET1 capital ratio of around 19 per cent. The bank said proposed measures related to TD DTAs, capitalised software and PVAs would remove capital recognition for these items “in a manner misaligned with international standards.” This would cut the CET1 capital ratio to around 17 per cent, underrepresenting the bank’s capital strength.

UBS said the added $24 billion of capital would be added to the previously-communicated incremental capital of around $18 billion UBS would have to hold because of its Credit Suisse acquisition and to meet existing regulations. In total, UBS would be required to hold a total of about $42 billion in added CET1 capital.

Deadlines
UBS said that because it expects none of the regulatory changes to take effect before 2027, it is sticking to its target of having an underlying return on CET1 capital of around 15 per cent and an underlying cost/income ratio of less than 70 per cent by the end of 2026. In the first quarter of 2025, the ratio was 14.3 per cent; the underlying return on CET1 capital was 11.3 per cent.

The bank said it also reaffirmed its capital return intentions for 2025. These include accruing for an increase of around 10 per cent in the ordinary dividend per share and buying back up to $2 billion of shares in the second half of the year, for a total of up to $3 billion. This plan continues to be subject to UBS Group maintaining a CET1 capital ratio target of around 14 per cent and achieving its financial targets; it is consistent with UBS’s previously-communicated plans and “conservative approach,” it said.

The bank said it will communicate its 2026 capital returns ambitions with its fourth quarter and full-year financial results for 2025.

FINMA statement

FINMA

“In its parameters paper published today for the preparation of the draft consultation on amendments to the Banking Act following the emergency takeover of Credit Suisse, the Federal Council sets out how it intends to improve the `too big to fail’ rules in Switzerland. The measures include the introduction of an accountability regime, more powers for FINMA and higher capital requirements for systemically important banks with subsidiaries abroad.  

“FINMA welcomes the planned introduction of several preventive and disciplinary instruments that will set the right incentives for supervised institutions and thus make a decisive contribution to reducing the likelihood of crises and resolution occurring in the Swiss banking centre. 

“The introduction of an accountability regime requires the banks to define in a legally binding manner who is responsible for which decisions. This enables a clear allocation of responsibility and thus targeted new sanctions – for example, clawbacks of variable remuneration already paid out or bonus cuts. At the same time, it makes it easier to enforce existing measures such as withdrawing an individual’s fit and proper designation or imposing an industry ban. FINMA will implement the regime pragmatically and proportionately; the burden on small banks with a simple structure should be minimal.

“FINMA’s demand for statutory powers to enable it to order supervisory measures earlier and more effectively (early interventions) is also included in the package by the Federal Council, as is the removal of the suspensive effect of appeals in such cases. In addition, FINMA should now also have the power to impose fines on offending institutions. 

“Furthermore, in order to be better prepared for a possible crisis at individual or multiple institutions, the Federal Council’s parameters paper provides for the requirements for recovery and resolution plans for systemically important banks to be increased,” FINMA added.

First-quarter results
As reported on 30 April, UBS said that across all its divisions, underlying pre-tax profit was $2.586 billion, down a touch from $2.617 billion a year before; the cost/income ratio was 82.2 per cent, or 77.4 per cent on an underlying basis. Net profit attributable to shareholders was $1.692 billion. 

“The power and scale of our diversified global franchise, coupled with our continued focus on clients, drove strong business momentum in the quarter and net new inflows in our asset-gathering businesses,” Sergio Ermotti, group CEO (pictured below), said at the time. 

Sergio Ermotti