Proposed banking law changes increase burden of tighter capital requirements
Options under review include U.S. relocation and merger with a European bank 
UBS departure would also hit Switzerland’s wealth management industry

UBS, Switzerland’s largest bank, is considering moving its headquarters abroad to reduce the cost burden of tighter capital requirements. After authorities demanded that UBS, enlarged by its rescue takeover of Credit Suisse, hold more capital, the bank began exploring relocation options, including acquiring a U.S. bank. UBS has been a central pillar of Switzerland’s wealth management industry, providing trading and lending services to local family offices and asset managers. If a headquarters relocation is followed by the departure of key personnel and business functions, Switzerland’s wealth management sector and related industries, including legal and tax services, will inevitably suffer. With Hong Kong and Singapore rapidly attracting wealthy clients’ money, concerns are also growing that a UBS departure could undermine Switzerland’s standing as an international financial hub.

Burden of Raising USD 16 Billion in Additional Capital

According to Bloomberg on the 15th, local time, UBS officials and the bank’s advisers are drawing up contingency plans that include relocating its headquarters. The relocation options under review include mergers and acquisitions involving overseas financial companies. Internally, the bank is examining a plan to acquire a small U.S. bank and then move its headquarters, and is reportedly compiling a list of acquisition targets. A merger with a European rival or a sale of UBS to a U.S. financial institution is also under consideration. Potential U.S. counterparties interested in UBS’s wealth management business and wealthy client base have reportedly already made contact.

UBS’s leadership and the U.S. government have also held preliminary discussions about a possible move to the United States. UBS Chairman Colm Kelleher privately discussed specific plans for relocating the headquarters to the United States with U.S. Treasury Secretary Scott Bessent last year, and President Donald Trump reportedly responded favorably to the prospect of attracting UBS at the time. Major shareholders also support a move abroad. Business restructuring options under discussion include retaining Swiss domestic operations while moving international operations overseas, or separating the domestic business and transferring it to shareholders or outside investors.

UBS’s consideration of a headquarters move is driven by an effort to reduce the higher costs stemming from Switzerland’s tighter capital rules. On the 23rd of last month, the Swiss upper house approved a proposal requiring UBS to back 90% of the value of its equity stakes in overseas subsidiaries with common equity tier 1 (CET1) capital, which consists of common shares, retained earnings and similar items. UBS estimated that, if the measure is finalized, it would need to secure an additional USD 16 billion (approximately USD 16.5 billion) in capital at its parent bank, UBS AG. Including the capital increases required under existing rules following the Credit Suisse acquisition and separate regulations announced this year, the total additional capital burden would reach USD 33 billion (approximately USD 34.0 billion), according to the bank. UBS expects the measures to cost USD 2.5 billion (approximately USD 2.58 billion) annually and maintains that excessive capital requirements undermine its international competitiveness.

Tighter Regulation Began With the Credit Suisse Crisis

The push for tighter regulation was triggered by the 2023 liquidity crisis at Credit Suisse, then one of Switzerland’s two largest banks. Its inability to withstand massive withdrawals despite meeting statutory capital and liquidity requirements called into question the ability of existing regulations to address a crisis. Before the crisis, Credit Suisse had been losing the trust of clients and investors amid a succession of financial scandals and management failures. With accumulated losses and restructuring costs weakening its capital base, a wave of withdrawals by anxious clients pushed the bank to the brink of insolvency in March that year. Although Credit Suisse met statutory capital and liquidity requirements at the time, it could not withstand the rapid online spread of distrust and the resulting outflow of funds.

As massive outflows made it difficult for Credit Suisse to survive independently, Swiss authorities pursued an emergency takeover by UBS, fearing that the fallout from a bankruptcy would spread to the domestic economy and international financial markets. Credit Suisse was a global systemically important bank, and its collapse could have triggered cascading shocks to transactions and funding among financial institutions. The Swiss government, central bank and Swiss Financial Market Supervisory Authority (FINMA) therefore mediated negotiations over the weekend to secure an agreement before financial markets opened on Monday. On March 19, 2023, a plan was announced for UBS to acquire Credit Suisse for CHF 3 billion (approximately USD 3.73 billion). It was an all-share transaction in which every 22.48 Credit Suisse shares would be exchanged for 1 UBS share. To support the emergency takeover, authorities waived shareholder approval requirements for both banks, while major regulators also agreed to cooperate in swiftly approving the transaction.

Substantial government guarantees were also arranged to ease UBS’s acquisition burden. Under the terms, UBS would absorb the first CHF 5 billion (approximately USD 6.22 billion) in losses arising from the disposal of certain noncore assets acquired in the takeover, while the government would cover additional losses of up to CHF 9 billion (approximately USD 11.2 billion). Government guarantees of up to CHF 100 billion (approximately USD 124 billion) were also attached to central bank liquidity loans to allow Credit Suisse to meet clients’ withdrawal requests during the acquisition process. Because no legal framework for such public liquidity support existed at the time, the federal government had to establish a legal basis through an emergency ordinance. After completing the acquisition in June that year and reassessing the risk of losses on the relevant assets, UBS voluntarily terminated the loss protection agreement in August. The government-guaranteed liquidity loans were also repaid in full, ending the related contracts and guarantees, and the Swiss government incurred no losses from honoring the guarantees.

Table 1. Background and Key Measures Behind the Swiss Government’s Tighter Capital Rules for UBS

Capital Rules Extended to UBS’s Overseas Subsidiaries

Following the acquisition, Swiss authorities faced the task of managing financial risks concentrated in an enlarged UBS. After absorbing Credit Suisse, UBS had total assets of USD 1.7 trillion (approximately USD 1.75e+3 billion) as of spring 2024, twice Switzerland’s annual gross domestic product (GDP), and was the country’s only remaining global systemically important bank. Believing that trouble at UBS could impose an enormous burden on public finances and taxpayers, authorities began working to strengthen the bank’s ability to absorb losses before a crisis occurred. The federal government’s banking stability package, unveiled in April 2024, included 22 measures covering tighter capital and liquidity requirements, clearer executive accountability, and bonus deferrals and clawbacks. The government also explicitly stated that some measures would be tailored to UBS, Switzerland’s only global systemically important bank.

The findings of a parliamentary inquiry released in December that year reinforced the case for tighter capital rules. The inquiry commission noted that, without a regulatory exemption FINMA granted Credit Suisse in 2017, the bank would have fallen well short of statutory capital requirements in 2022, and called for limits on exemptions for large banks. Follow-up measures fleshed out ways to reduce the impact of problems at overseas subsidiaries on the parent bank’s capital soundness. Under the existing system, part of the investment in overseas subsidiaries could be financed through borrowing, creating a risk that a decline in a subsidiary’s value would erode the parent bank’s capital. Even an attempt to sell an overseas subsidiary to resolve a crisis could leave the parent bank short of capital because of losses on the sale. In response, the federal government proposed in June last year that investments in overseas subsidiaries be fully backed by the parent bank’s common equity tier 1 capital. The aim was to strengthen capital requirements so that the parent bank could remain financially sound even if overseas operations suffered losses or subsidiaries were sold.

UBS Departure Could Also Shake Switzerland’s Wealth Management Foundations

However, the burden of rescuing a major bank—the very burden Switzerland seeks to reduce through tighter capital rules—could also become an issue in UBS’s relocation abroad. Any country hosting UBS would likewise have to consider the risks to its own financial markets and taxpayers in a crisis. Warnings have also emerged in the United States that attracting UBS could increase the risks borne by U.S. taxpayers. In letters sent to Treasury Secretary Bessent and UBS in December last year, U.S. Senator Elizabeth Warren stressed that UBS would become the sixth-largest U.S. bank by assets if it relocated to the United States, and expressed concern about the impact its failure could have on the U.S. economy and financial system. She also warned that pursuing a headquarters relocation while legal, financial and operational challenges from the Credit Suisse acquisition remained unresolved could disrupt a safe integration process.

If UBS moves abroad, Switzerland also risks losing a core foundation of its financial industry. UBS has supported overseas investments by family offices and asset managers serving ultra-high-net-worth clients, providing services such as asset custody, trade execution and lending. If a headquarters relocation is followed by the transfer of key personnel and business functions overseas, local firms that have managed client assets in collaboration with UBS would also face the burden of reorganizing their business relationships and operating structures. In particular, the simultaneous departure of wealthy clients and wealth management professionals is seen as a factor that could weaken not only local private banking (PB) operations but also demand for legal and tax advice related to investments and inheritance.

Rise of Asian Financial Hubs Raises the Stakes of a UBS Departure

If Switzerland’s wealth management foundations weaken, its position in the competition with Hong Kong and Singapore to attract global funds could also suffer. The two financial hubs have recently expanded their influence in the offshore wealth management market by attracting money from wealthy clients in China and Southeast Asia. According to this year’s global report by Boston Consulting Group (BCG), offshore assets attracted by Hong Kong last year totaled USD 2.95 trillion (approximately USD 3.04e+3 billion), surpassing Switzerland’s USD 2.94 trillion for the first time. This reflected a combination of inflows from mainland China, a boom in initial public offerings (IPOs) and rising share prices. In Singapore, demand for wealth management also expanded as the number of single-family offices, which manage the wealth of one family, grew from 400 in 2020 to more than 2,000 at the end of 2024. BCG forecast that offshore assets in Hong Kong and Singapore would grow by approximately 9% annually through 2030.

Already facing pressure from Hong Kong and Singapore, Switzerland faces a difficult choice in pushing ahead with regulation at the risk of losing UBS. UBS, too, would face tax costs from moving its headquarters and the risk of losing clients who have done business with it based on their trust in a Swiss bank. With a split carrying substantial costs for both sides, they need to find common ground on capital regulation, but political efforts to forge a compromise have yet to bear fruit. Last August, the economic affairs committee of the Swiss upper house proposed that the capital backing equity stakes in overseas subsidiaries be funded equally with CET1 and lower-cost additional tier 1 (AT1) capital instruments. The proposal aimed to strengthen loss-absorbing capacity while easing UBS’s capital-raising burden. However, at its plenary session last month, the upper house approved a proposal requiring 90% of the value of equity stakes in overseas subsidiaries to be backed by common equity tier 1 capital, rather than adopting the compromise. With UBS objecting that the requirement remains excessive, the search for a compromise has now shifted to the lower house.