UBS Warns Swiss Lawmakers: Strict Capital Rules Could Push Us Out

UBS CEO Sergio Ermotti has sounded a warning to Swiss lawmakers ahead of an upcoming vote on new capital rules. The proposed regulations aim to ensure UBS can absorb losses from its foreign subsidiaries without dragging the Swiss taxpayer into the wreckage.

The government's original proposal requires 100% CET1 capital backing for foreign subsidiaries, which Ermotti has called 'overly harsh.' He argues that Switzerland would be imposing stricter capital standards than major financial centers like Wall Street and Europe, putting UBS at a competitive disadvantage.

A parliamentary committee has floated a compromise that would let UBS meet half of the foreign subsidiary capitalization requirement using Additional Tier 1 bonds instead of pure CET1 capital. This softer framework would still require UBS to raise an estimated $13 billion in additional capital.

Ermotti's comments were notable, but Chairman Colm Kelleher has gone further, warning that UBS may reconsider its future in Switzerland entirely if the capital requirements undermine competitiveness.

The September 23 vote has become a focal point for anyone with exposure to European banking stocks. The difference between the government's full CET1 proposal and the committee's AT1 compromise amounts to roughly $7 billion in capital requirements, which could materially affect UBS's return on equity, dividend capacity, and share buyback programs.