‘Switzerland has spoken’. Will UBS leave?

Submission Statement: Three-and-a-half years after UBS acquired its stricken rival Credit Suisse in a state-orchestrated rescue, Switzerland’s biggest bank is once again confronting fundamental questions about its future. Last month, the bank was dealt a crushing blow when the Swiss parliament’s upper house backed a proposal that would force it to hold an extra $16bn of capital. The final proposals, designed to prevent a repeat of the 2023 crisis, still have to pass through the legislature’s lower chamber. But UBS executives are resigned to losing the political battle. “Switzerland has spoken,” said one person close to the bank’s leadership.

Chair Colm Kelleher acknowledged publicly for the first time last month that UBS could reconsider its Swiss base if the regulatory tightening proved too onerous. Two of UBS’s largest investors have already urged the bank to shift its headquarters out of Switzerland if the planned reforms are rubber-stamped by the parliament’s more left-leaning lower house.

Artisan Partners, a top-10 shareholder, wrote to the bank’s board last week saying Switzerland was “no longer an attractive or desirable location” for the country’s largest lender — whose balance sheet significantly exceeds the size of the country’s economy. Cevian Capital, which owns about 1.5 per cent, issued a similar warning last year.

Some investors have pointed to the US as a potential destination for relocation because of its less stringent capital framework, while others say a large Eurozone economy closer to UBS’s traditional home, such as Germany, could house the group. The UK is considered less viable because its capital requirements are more similar to those in Switzerland.

Several governments have raised relocation with UBS over the past few years, according to a person familiar with the matter.

Rather than relocating on its own, UBS could pursue a deal with a foreign rival, allowing it to escape Switzerland’s capital regime. One person familiar with the bank’s thinking said that UBS would have more options once the integration of Credit Suisse was complete.

One way of achieving this could be through a reverse takeover in which a smaller foreign bank — potentially in the US — acquires UBS in an all-share deal but UBS shareholders emerge with a majority stake in the combined group.

Giulia Aurora Miotto, an analyst at Morgan Stanley, said such a structure could avoid the exit tax, although it would require a smaller bank to merge with UBS and potentially cede control of the combined group.

Some UBS insiders see Morgan Stanley — where Kelleher spent much of his career — as a potential partner with obvious synergies. “You would be combining the largest US wealth manager with the largest international one,” said a person familiar with the matter. There is no indication that any side is pursuing a transaction currently.

If implemented, the new capital rules would fall particularly heavily on UBS’s US operations, by far its largest foreign subsidiary, with some industry observers saying the bank could consider offloading some or all of the business. But such a move would run directly against UBS’s global ambitions. Goldman Sachs analysts describe the US, alongside Asia, as a key pillar of UBS’s growth strategy in global wealth management.