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 crisis.

The 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 billion.

The 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 capital.

The 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 measures.

UBS 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 subsidiaries.

Now, the new capital proposals will be put out for consultation before being submitted to the parliament.

Per 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.

Recent Developments in UBS-Credit Suisse Integration

UBS took over its rival Credit Suisse in a state-sponsored rescue in 2023.

Since 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 evasion.

Nonetheless, UBS is on track to substantially complete the integration of Credit Suisse by the end of 2026 and, hence, achieve the targeted cost reductions.

In 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 2026.

In 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.

UBS’ Zacks Rank & Price Performance

Over the past six months, UBS shares have gained 6.1% compared with the industry’s growth of 23.1%.

Currently, UBS carries a Zacks Rank #3 (Hold).

UBS’ Peers Worth Considering

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 here.

Earnings 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.

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This article originally published on Zacks Investment Research (zacks.com).

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