UBS Warns Swiss Capital Rules Could Cost Billions, Hurt Competitiveness

Key Points

• UBS warned that proposed Swiss capital rules could cost billions and weaken its competitiveness. The bank estimates annual costs of about CHF 3 billion under the strictest proposal, or roughly CHF 2 billion under a 50/50 common-equity and AT1 approach.
• UBS reported continued progress integrating Credit Suisse, with more than 90% of inherited applications no longer in use and about three-quarters decommissioned. Wealth management remains a key growth area, particularly in the U.S. and across Asia.
• The bank plans to prioritize dividend growth and share buybacks while maintaining a 14% capital position. CEO Sergio Ermotti said AI could improve efficiency and support expansion, but UBS will continue investing in infrastructure and cybersecurity rather than favoring short-term repurchases.

UBS Group NYSE: UBS Chief Executive Officer Sergio Ermotti said proposed Swiss capital rules could impose substantial costs on the bank and create a competitive disadvantage, while also outlining continued progress on the integration of Credit Suisse and growth plans across wealth management.

Speaking at Bank of America’s 31st Financial Conference, Ermotti said a proposal requiring 90% common-equity Tier 1 backing for foreign subsidiaries would be only marginally different from the Swiss Federal Council’s original 100% proposal. He said the difference would amount to about CHF 4 billion but would not address what he described as the central lesson from Credit Suisse’s failure: implementation of the existing regulatory framework.

“We don’t see this as a compromise, but rather as a little lighter version of the current proposal,” Ermotti said. He added that the approach would not be internationally aligned and could distort UBS’s competitive position.

Capital Debate and AT1 Proposal

Ermotti said an alternative proposal involving a 50/50 mix of common-equity Tier 1 capital and additional Tier 1, or AT1, instruments would still result in a significant increase in UBS’s Tier 1 capital requirements. He estimated that the Federal Council’s more stringent proposal would cost the bank about CHF 3 billion annually, while the 50/50 approach would reduce that estimated annual cost to about CHF 2 billion.

He also said shareholders had already absorbed roughly CHF 15 billion in forgone profits associated with stabilizing and restructuring Credit Suisse.

On proposed changes to Swiss AT1 instruments, Ermotti said the measures would clarify the Swiss regime and align it with standards in the European Union and United Kingdom. He characterized the proposal as a balanced, though costly, approach and said it would not eliminate AT1 capital.

The Swiss parliamentary process was expected to continue after an upper-house vote, with review by the lower house and potential reconciliation if the two chambers differed. Ermotti said he hoped the issue could be resolved by year-end, while noting the process had become politically complex ahead of Swiss elections.

Third-Quarter Momentum and Integration Progress

Ermotti said UBS was making good progress on its operating plan and was seeing solid growth momentum, particularly in wealth management. He said front-office employees were increasingly focused on clients as integration work neared completion.

In the investment bank, UBS expects transaction activity to increase year over year, although Ermotti said it was “very unlikely” to match the unusually strong third quarter recorded a year earlier. Banking fee pools are expected to decline in line with broader market trends, while the markets business continues to show robust momentum and market-share gains, he said.

UBS recently retired almost CHF 10 billion of Credit Suisse-issued debt and replaced it with longer-dated issuance at tighter spreads. Ermotti said the transaction should benefit net interest income beginning in 2027. Costs recorded in the third quarter are expected to be offset by non-core legacy asset disposals or litigation resolutions, making the liability-management exercise not meaningful to quarterly results overall.

On integration, Ermotti said more than 90% of the 3,000 applications inherited from Credit Suisse were no longer in use, and about three-quarters had been decommissioned. UBS expects to be close to its year-end targets, which he said should help drive progress toward a 67% cost-income ratio target and influence its 2027 financial profile.

Wealth Management Growth Plans

Ermotti said UBS intends to use technology and increased front-to-back capacity to expand deeper into high-net-worth client segments while maintaining its position in ultra-high-net-worth and global family office businesses.

In the U.S., the company is pursuing high-teens pre-tax profit margins in wealth management. UBS reached a 15% pre-tax margin in the first half and 16% in the second quarter, according to Ermotti. He cited lending growth, the benefits of a national banking charter, closer collaboration between wealth management and the investment bank, and artificial intelligence tools for financial advisers as drivers of progress.

He said UBS had recorded nine consecutive quarters of lending growth in the U.S. and that financial-adviser attrition had leveled off toward industry rates. The company also has a recruiting pipeline, although Ermotti said UBS was seeking to avoid recruiting arrangements that would be destructive to value.

In Asia, UBS plans to continue investing across Greater China, Southeast Asia, Australia, Japan and India. Ermotti said the combined UBS and Credit Suisse franchises had created a stronger regional business, shifting UBS from a more China-centric operation toward a broader and more diversified Asian platform.

Capital Allocation and AI

Ermotti said UBS’s first priority for capital remains protecting and increasing its cash dividend. He noted that the annual dividend rose from $0.55 in 2022 to $1.10 last year. The bank had completed $1.2 billion of the additional $3 billion share-buyback program announced through June 2027 and expected to reach at least $1.5 billion by the end of October.

The pace of repurchases will depend on financial performance and UBS’s ability to maintain a 14% capital position, he said.

Ermotti said artificial intelligence could lower costs and improve efficiency, but cautioned that AI also requires infrastructure investment and stronger cyber defenses. He said UBS would not sacrifice investments needed for long-term growth in favor of short-term share repurchases.

“The big winners out of these transformations are going to be the clients,” Ermotti said, adding that UBS aims to use technology not only to optimize returns but also to expand into additional segments and geographies.

About UBS Group (NYSE:UBS)

UBS Group AG is a Switzerland-based global financial services company serving individuals, businesses, institutional investors and governments. Its principal businesses include wealth management, personal and corporate banking, asset management and investment banking.

Through its Global Wealth Management business, UBS provides investment advice, portfolio management, financial planning, lending and other services to private and institutional clients. Its Personal and Corporate Banking operations offer deposit, lending, payment and other banking services, primarily in Switzerland.

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