In turmoil due to crises, UBS's ambition for global expansion is now restricted by Switzerland
Switzerland Cracks Down on UBS, Setting banks Safety First
In an attempt to prevent another financial crisis and safeguard the country's economy, Switzerland has unleashed a series of reforms aimed at UBS, the sprawling bank that has eclipsed Switzerland's economy. UBS took centre stage as Switzerland's sole global bank after the government intervened to save scandal-ridden Credit Suisse, averting a potential market meltdown.
The fall of Credit Suisse sent shockwaves through the financial world, leaving officials and regulators reeling as they struggled to steer the failing bank through one scandal after another. Switzerland's President Karin Keller-Sutter made it clear on Friday that they would not be taken by surprise again.
"We've had two crises — 2008 and 2023. If you see something that's broken, you have to fix it," Keller-Sutter said.
During the 2008 financial crisis, UBS was mauled by losses in subprime debt, forcing it to write off billions and eventually seek a government bailout. Memories of that debacle served as a haunting reminder and spurred the government to act decisively after the collapse of Credit Suisse.
As for UBS, the proposed reforms come with a hefty price tag: the bank may have to fork over up to $26 billion in additional capital. Some analysts believe this could alter the bank's strategy of growth in the United States and Asia.
"It could be that UBS has to change its strategy of growth in the U.S. and Asia," said Andreas Venditti, an analyst at Vontobel. "It's not just growing. It makes the existing business more expensive. It is an incentive to get smaller, and this will likely happen."
The rules demand that UBS in Switzerland holds more capital to cover risks in its foreign operations, making the bank's businesses abroad more expensive to run, a significant blow for one of the globe's largest banks for millionaires and billionaires.
Switzerland's government contends that UBS and its stakeholders, not the state, should bear the risk for growth abroad. Meanwhile, critics praise the Swiss government for resisting pressure from UBS and implementing reforms that are long overdue.
Despite the uproar, others argue that the government has not gone far enough. Hans Gersbach, a professor at ETH Zurich, expresses concern over the lack of a proper plan to cope should UBS run into trouble.
Key Insights:
- The proposed reforms aim to improve UBS's safety and resilience following the collapse of Credit Suisse.
- UBS may be required to raise its core capital by up to $26 billion, with most of the increase coming from foreign subsidiaries.
- The new rules will make UBS's foreign operations more expensive to run, potentially prompting a strategic realignment towards core or higher-return markets.
- Critics praise the Swiss government for standing up to pressure from UBS and implementing reforms long overdue, but others argue that more needs to be done to address systemic risks.
- The proposed reforms for UBS, following the collapse of Credit Suisse, are aimed at enhancing its safety and resilience in the financial sector.
- UBS might need to raise its core capital by up to $26 billion, with the majority of this increase coming from foreign subsidiaries, according to the new rules.
- The new rules could make UBS's foreign operations more expensive to run, potentially leading to a strategic realignment towards core or higher-return markets.
- Critics commend the Swiss government for implementing reforms that are long overdue, even as others argue that more needs to be done to address systemic risks in the banking sector and general-news.
