SNB's Bold Move: Full Capitalization of UBS Units

The Swiss National Bank (SNB) has made a bold move, suggesting that UBS fully capitalize its foreign subsidiaries. This recommendation, made by SNB Vice Chairman Antoine Martin, is a significant step towards enhancing financial stability in the wake of the UBS-Credit Suisse merger. However, it also raises critical questions about the potential impact on UBS's global operations and competitive position.

The integration of Credit Suisse into UBS has been a monumental task, reshaping Switzerland's financial landscape and sending ripples through the global financial system. The merger, orchestrated by Swiss authorities to prevent a major banking crisis, has had significant implications for jobs, competition, and Switzerland's reputation as a global banking hub. The merger has drastically reduced competition in Switzerland’s banking sector, leaving UBS in a dominant position. This consolidation raises concerns about monopolistic behavior, such as higher fees and fewer options for clients. Smaller banks and fintech companies may find opportunities to fill gaps in the market, but the sheer scale of UBS’s operations could stifle innovation. Regulators are under pressure to ensure that UBS’s dominance doesn’t come at the expense of fair pricing or service quality.



The suggestion by the SNB to fully capitalize UBS's foreign subsidiaries has both potential benefits and drawbacks. On the one hand, it could enhance financial stability and regulatory compliance, boosting investor and market confidence. On the other hand, it could increase operational complexity, costs, and potentially lead to a reduction in UBS's global reach and market share. The decision to fully capitalize foreign units could influence UBS's strategic decisions regarding its global footprint. As Martin noted, "But we don't comment on what the banks would do," indicating that UBS might reconsider its presence in certain markets if the regulatory burden becomes too onerous. This could lead to a reduction in UBS's global reach and market share, potentially ceding ground to competitors who are not subject to the same capitalization requirements.

The regulatory and financial implications of UBS fully capitalizing its foreign subsidiaries are significant and multifaceted. One of the key regulatory implications is the potential for increased capital requirements. Fully capitalizing foreign subsidiaries would mean that UBS would need to allocate more capital to these entities, which could strain the bank's overall capital reserves. This is particularly relevant given that UBS's CET1 capital ratio was 14.3% as of the end of 2024, which is already a robust figure but could be impacted by additional capital allocations.



Financially, the bank might face higher costs associated with capitalizing its foreign subsidiaries. This could affect its profitability and liquidity management. For instance, the bank's net profit attributable to shareholders for 2024 was USD 5,085 million. Any significant increase in capital requirements could potentially reduce this figure, impacting the bank's earnings per share and overall financial performance.

Moreover, the decision to fully capitalize foreign subsidiaries could influence UBS's strategic decisions. As Martin noted, "But we don't comment on what the banks would do." This suggests that UBS might consider restructuring its operations or even exiting certain markets if the regulatory and financial burdens become too onerous. Such a move could have far-reaching implications for the bank's global footprint and its ability to serve clients in different regions.

Additionally, the integration of Credit Suisse into UBS has already been a complex process, with significant challenges in merging operations, workforces, and client bases. Fully capitalizing foreign subsidiaries could add another layer of complexity to this integration, potentially delaying or complicating the process further.

In summary, while fully capitalizing its foreign subsidiaries could enhance financial stability, it would also impose significant regulatory and financial burdens on UBS. These implications could affect the bank's overall strategy and performance, potentially leading to higher costs, reduced profitability, and strategic re-evaluations. The SNB's recommendation is a double-edged sword, offering both opportunities and challenges for UBS as it navigates the complex landscape of global banking.