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On Monday, JPMorgan reiterated its Overweight rating and CHF37.00 price target on UBS Group AG (UBSG:SW) (NYSE:UBS). The firm’s analysis anticipates significant regulatory developments that could impact the banking giant’s capital requirements and shareholder returns.
The Swiss Federal Council is expected to initiate a public consultation on June 6 concerning banking stability reforms. These proposed measures are particularly focused on the capital treatment of foreign participations, which is slated to be regulated at the legislative level. For UBS Group, this could mean an increase in capital run-rate requirements.
According to JPMorgan, if the scenario of 100% coverage of foreign participations through going concern capital is adopted, UBS Group might require an additional $20 billion in capital at the Parent Bank level. However, this figure could potentially decrease to $12.8 billion as capital is repatriated over time, mainly from Credit Suisse International and partly from the U.S. Intermediate Holding Company (IHC), pending regulatory approvals.
This adjustment in capital could lower JPMorgan’s 2027 estimated return on CET1 capital (RoCET1) for UBS from 16.1% to 14.3%. This estimate is based on a CET1 ratio of 16.6% for 2027, with an extreme scenario including the elimination of $12 billion in share buybacks from the 2026-27 estimates to fill the capital shortfall. JPMorgan has indicated that it will revisit its buyback assumptions following the release of the proposals.
The outcome of these regulatory changes is also expected to influence the shareholder payout potential of UBS Group in the short term. The use of upstreamed capital from UBS AG to UBS Group AG standalone will be divided between resolving the double leverage issue and distributing payouts to shareholders, with the level of equity double leverage UBS decides to operate with being a critical factor.
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