UBS Stock Surges 6% on 260 Billion USD Capital Plan

UBS Group AG's stock price surged, reaching its highest intraday gain since April 10, following the announcement of a 260 billion USD capital plan. This plan, which will be phased in over the next decade, has provided clarity to investors who have been grappling with uncertainty for several months. Analysts noted that UBS's stock performance this year has lagged behind its peers, and the new capital requirements have already been factored into the stock price.

The Swiss government proposed stricter rules for UBS following its acquisition of Credit Suisse, which includes a requirement for the bank to hold an additional 260 billion USD in core capital. This move aligns with some of the most pessimistic expectations regarding the upcoming regulatory changes. The proposal mandates that UBS fully capitalize its overseas branches, with a preparation period of 6 to 8 years after the relevant laws are passed. This timeline is in line with expectations from many analysts, lawmakers, and executives.

UBS's stock, which had underperformed its European peers due to regulatory uncertainty, saw a significant jump of over 6% in the afternoon following the proposal's release. This surge is poised to be the bank's best single-day performance since May 2024. The government's capital requirements proposal allows UBS to reduce its holdings of additional tier 1 (AT1) bonds by 80 billion USD. Currently, UBS is required to inject 60% of the capital into its overseas branches and can use AT1 debt to cover part of the funding needs.

UBS executives have expressed concerns that the additional capital burden could put the Zurich-based bank at a disadvantage compared to its competitors and weaken Switzerland's position as a financial hub. The collapse of Credit Suisse in 2023 sent shockwaves through Switzerland, prompting top politicians, led by Finance Minister Karin Keller-Sutter, to vow stricter rules to protect taxpayers and prevent future crises. Keller-Sutter, who currently serves as the rotating chair of the Swiss government, made the announcement on Friday, setting the stage for a prolonged political debate over the measures. The Federal Council described these measures as "targeted and proportionate."

The Federal Council stated that these measures would enhance trust in the financial center, which is crucial for its stability and competitiveness. A parliamentary inquiry last year revealed that UBS's balance sheet has grown to exceed the size of the Swiss economy since acquiring Credit Suisse for 3 billion Swiss francs (3.65 billion USD) in March 2023. The inquiry urged the government to consider the bank's overseas branches. The Federal Council plans to seek input from stakeholders on the draft proposal in the second half of 2025. Officials from the finance ministry indicated that the legislation, which requires parliamentary approval, could take effect as early as 2028.

Separate regulations that the government can issue directly, known as ordinances, could come into force as early as January 2027. The government believes that giving UBS a transition period of 6 to 8 years to comply with the new capital requirements for its overseas branches is appropriate, meaning the bank may need to complete compliance by the mid-2030s. Insiders within the bank have warned that the new regulatory rules could make UBS an attractive takeover target. According to the proposal, UBS's common equity tier 1 (CET1) ratio could ultimately be slightly higher than that of its global competitors. Currently, UBS's 14.3% CET1 ratio could rise to 17%, surpassing rivals such as JPMorgan Chase (15.8%), Morgan Stanley (15.7%), and Goldman Sachs (15.3%).

UBS's stock rose over 60% in the 12 months following the acquisition of Credit Suisse but has since underperformed, falling approximately 5% over the past year, while the major European bank index rose 37%. Analysts suggest that the new regulatory rules could prompt UBS to adjust its current business model, which focuses on growth in the United States and Asia. To alleviate the pressure from the rules, the bank may be inclined to sell some of its assets. The Swiss government also proposed a series of scattered reforms to strengthen the market regulator, the Swiss Financial Market Supervisory Authority (FINMA), which has faced criticism for its handling of the Credit Suisse collapse. These reforms include holding bankers accountable, granting regulatory authorities the power to impose fines, and simplifying procedures for capping salaries and clawing back bonuses. Similar measures were introduced by the European Union following the 2007-2009 financial crisis. The government also proposed streamlining the process for banks to obtain liquidity from the Swiss National Bank and removing obstacles to transferring collateral to the Swiss central bank.