UBS, Having Absorbed Credit Suisse, Weighs Relocation of Headquarters Amid Capital Regulations; Warning Signs for Switzerland's Status as a Financial Power

Push for Amendments to Banking Laws Increases Burden of Capital Requirements
Considering Multiple Options Including Moving to the US and Merging with European Banks
Switzerland’s Asset Management Industry to Be Hit If UBS Leaves

UBS, Switzerland's largest bank, is considering relocating its headquarters overseas to reduce cost burdens arising from strengthened capital regulations. After the rescue acquisition of Credit Suisse, as the enlarged UBS was required by authorities to increase its capital expansion, it began exploring the possibility of moving by acquiring an American bank or other means. UBS has served as a central pillar of Switzerland's asset management industry by providing transaction and lending services to local family offices and asset management firms. Should the relocation be accompanied by a transfer of key personnel and business functions, Switzerland’s asset management sector and related industries such as legal and tax services will inevitably be impacted. Concerns have also arisen that if UBS's exit becomes a reality amid Hong Kong and Singapore swiftly attracting wealth funds, Switzerland's status as an international financial hub could be shaken.

Burden of Preparing an Additional $16 Billion in Capital

According to Bloomberg on the 15th (local time), UBS officials and the bank's advisory team are drafting contingency plans that include the possible relocation of its headquarters. Among the relocation plans under consideration by UBS is the possibility of mergers and acquisitions (M&A) with foreign financial companies. Internally, the bank is examining acquiring a small U.S. bank and then moving its headquarters, and is reportedly compiling a list of acquisition candidates. Plans to merge with a European competitor bank or to sell UBS to a U.S. financial institution are also under review. It has been reported that potential U.S. counterparts interested in UBS's asset management business and wealthy client base have approached the bank.

Preliminary discussions regarding a potential move to the U.S. took place between UBS executives and the U.S. government. Colm Kelleher, UBS Chairman, privately discussed detailed plans for relocating headquarters to the U.S. with U.S. Treasury Secretary Janet Yellen last year, and former President Donald Trump also reportedly showed a positive response toward attracting UBS. Major shareholders are also supportive of the move abroad. As part of the business reorganization related to relocation, considerations include maintaining domestic operations in Switzerland while shifting international business overseas or separating domestic business to transfer to shareholders or external investors.

UBS's review of headquarters relocation is based on a calculation to reduce the increased cost burden from strengthened Swiss capital regulations. On March 23, the Swiss Senate approved a measure requiring UBS to back 90% of the value of its overseas subsidiaries' equity with Common Equity Tier 1 capital (CET1), consisting of common stock and retained earnings. UBS estimates it will need to secure an additional $16 billion in capital for its headquarters bank, UBS AG, if this measure is finalized. Including capital expansion following the Credit Suisse acquisition and additional regulations announced this year, the bank says the total additional capital burden amounts to approximately $34 billion. UBS anticipates annual costs related to the measure to reach $2.58 billion and maintains that excessive capital requirements impair international competitiveness.

Regulatory Tightening Triggered by Credit Suisse Crisis

The regulatory tightening was triggered by the liquidity crisis of Credit Suisse, one of Switzerland's two major banks in 2023. Despite meeting legally required capital and liquidity levels, Credit Suisse could not withstand large-scale fund withdrawals, raising questions about the crisis response capacity of existing regulations. Prior to the crisis, Credit Suisse had lost the trust of customers and investors due to a series of financial mishaps and management failures. With a weakened capital base from accumulated losses and restructuring costs, spooked clients withdrew funds en masse, pushing the bank to a liquidity crisis in March of that year. Although Credit Suisse met legal capital and liquidity requirements at that time, it failed to manage the rapidly spreading distrust and fund outflows through online channels.

As massive fund withdrawals made independent survival of Credit Suisse difficult, Swiss authorities, fearing the shock of bankruptcy spreading to the domestic economy and international financial markets, sought an emergency takeover by UBS. Credit Suisse was a global systemically important bank that, if it failed, could cause a chain reaction affecting interbank transactions and funding. To secure an agreement before the Monday market opening, the Swiss government, central bank, and financial regulator (FINMA) mediated negotiations over the weekend, announcing on March 19, 2023, that UBS would acquire Credit Suisse for 3 billion Swiss francs (approximately $3.73 billion). The deal was an all-stock exchange where 22.48 Credit Suisse shares were exchanged for one UBS share. To support the emergency acquisition, authorities exempted approval procedures for shareholders of both companies, and major regulators agreed to expedite transaction approval.

Substantial government guarantees were also established to alleviate UBS's acquisition burden. If losses occurred during disposal of certain non-core assets involved in the acquisition, UBS would bear up to 5 billion Swiss francs (approximately $6.22 billion) initially, with the government compensating losses exceeding this up to a maximum of 9 billion Swiss francs (approximately $11.2 billion). To support customer withdrawal demands during the acquisition process, the central bank's liquidity loans were backed by government guarantees of up to 100 billion Swiss francs (approximately $124 billion). At that time, legal provisions for such public liquidity support measures did not exist, so the federal government issued an emergency order to provide a legal basis. UBS completed the acquisition in June of the same year, reassessed loss risks on relevant assets, and voluntarily terminated the loss compensation agreement in August. The government-guaranteed liquidity loans were fully repaid, ending related contracts and guarantees, with the Swiss government incurring no losses from guarantee executions.

Table 1. Background and Key Measures of Swiss Government’s Strengthened Capital Regulations for UBS

Extension of Capital Regulations to UBS Overseas Subsidiaries

After the acquisition, Swiss authorities faced the challenge of managing the financial risks concentrated in the enlarged UBS. UBS's total assets after absorbing Credit Suisse amounted to $1.7 trillion as of spring 2024, about twice Switzerland’s annual GDP, and UBS remained the only global systemically important bank left in the country. Authorities viewed a potential instability at UBS as posing massive burdens on national finances and taxpayers, prompting early initiatives to bolster the bank's capacity to absorb losses on its own. The federal government's April 2024 bank stability measures included 22 actions such as strengthening capital and liquidity requirements, clarifying executive accountability, and suspending and clawing back performance bonuses. The government also indicated plans to apply some measures specifically to UBS as Switzerland’s sole global systemically important bank.

A parliamentary investigation report released in December 2024 strengthened the case for more stringent capital regulations. The committee pointed out that, without the regulatory exemptions FINMA granted to Credit Suisse in 2017, the bank would have been significantly under the legal capital requirements in 2022, and recommended limiting exemptions for large banks. Subsequent measures focused on reducing the impact of overseas subsidiaries’ poor performance on the headquarters’ capital soundness. Under previous rules, part of the equity investment in foreign subsidiaries could be funded by borrowed money, which meant declines in subsidiary value could erode the headquarters' capital, and attempts to sell subsidiaries to manage a crisis could lead to capital shortages due to disposal losses. In response, the federal government proposed in June last year that the full amount of overseas subsidiary equity investments be backed by the headquarters’ common equity capital, aiming to strengthen capital requirements to ensure the headquarters maintains soundness despite losses or divestitures overseas.

If UBS leaves, Switzerland’s asset management base could also be shaken

However, the burden of the bailout obligations Swiss capital regulation seeks to reduce for large banks can also become a contentious issue during any overseas relocation of UBS. The countries seeking to attract UBS must also consider the risks to their own financial markets and taxpayers in the event of a crisis. Warnings have been voiced in the U.S. as well regarding the attraction of UBS. U.S. Senator Elizabeth Warren sent letters in December last year to Treasury Secretary Yellen and UBS, emphasizing that UBS would become the sixth-largest bank in the U.S. by assets if it relocated there, expressing concern about the impact on the U.S. economy and financial system should it fail. She also noted that efforts to move headquarters amid unresolved legal, financial, and operational issues from the Credit Suisse acquisition could disrupt a safe integration process.

If UBS relocates overseas, Switzerland risks losing a core pillar of its financial industry. UBS provides asset custody, transaction execution, and lending services to family offices and asset managers handling ultra-high-net-worth individuals’ wealth, supporting their overseas investments. In such a scenario, if relocation entails key personnel and business functions moving abroad, local firms that have operated based on cooperation with UBS to manage clients’ assets will face the burden of reconfiguring their business relationships and operations. Especially, the simultaneous departure of affluent clients and asset management personnel could shrink demand not only for local private banking services but also for related legal and tax advisory services involved in investment and inheritance.

Growing Burden of UBS Departure Amid Asian Financial Hub Rise

If Switzerland's asset management base weakens, its position in the global competition for funds against Hong Kong and Singapore could also decline. These two financial hubs have recently increased their influence in the offshore asset management market by attracting wealthy clients from China and Southeast Asia. According to the Boston Consulting Group's (BCG) 2024 global report, Hong Kong attracted offshore assets totaling $2.95 trillion last year, surpassing Switzerland’s $2.94 trillion for the first time. This is due to inflows of mainland Chinese funds coinciding with IPO booms and rising stock prices. In Singapore, the number of single-family offices managing the wealth of single families expanded from 400 in 2020 to over 2,000 by the end of 2024, increasing asset management demand. BCG forecasts offshore assets in Hong Kong and Singapore to grow at an average annual rate of about 9% through 2030.

Already challenged by the rise of Hong Kong and Singapore, Switzerland faces a significant burden in pushing regulations that could drive away UBS. UBS itself risks tax burdens and losing customers who transact based on trust as a Swiss bank if it relocates. Given the high costs of separation for both sides, a compromise on capital regulations is needed, but political efforts have yet to bear fruit. The Swiss Senate’s Economic Committee proposed in August a compromise allowing half of the capital backing overseas subsidiary holdings to be covered by CET1 and half by lower-cost Additional Tier 1 capital (AT1), aiming to bolster loss absorption capacity while easing UBS’s capital funding burden. However, last month the Senate plenary adopted a measure requiring 90% of overseas subsidiary equity values to be backed by common equity capital instead of the compromise proposal. UBS continues to object that the burden remains excessive, and the House of Representatives must now take up the matter for further negotiation.