UBS contests Swiss capital requirement hike

ZURICH - Swiss banking giant UBS AG (NYSE:UBS) (SWX:UBSN), currently valued at $103.7 billion and maintaining a GOOD financial health score according to InvestingPro, has expressed support for most of the new regulatory proposals by the Swiss Federal Council but is pushing back against what it considers to be disproportionately high capital requirements. The bank, which generated $47.76 billion in revenue over the last twelve months, highlighted in a statement today its disagreement with the proposed capital rules that would significantly increase the amount of capital it must hold.

According to UBS, the recommendations would necessitate a full deduction of investments in foreign subsidiaries and certain tax assets from its Common Equity Tier 1 (CET1) capital, along with an increase in prudential valuation adjustments. These changes would require UBS to hold an additional estimated $24 billion in CET1 capital on a pro-forma basis, based on first-quarter 2025 financials. This is in addition to the $18 billion in incremental capital needed following the acquisition of Credit Suisse, bringing the total additional CET1 capital to approximately $42 billion.

Despite these proposed changes, which are not expected to be effective until 2027, UBS is maintaining its financial targets, including an underlying return on CET1 capital of around 15% and a cost/income ratio of less than 70% by the end of 2026. The bank’s strong positioning is reflected in its current P/E ratio of 21.57 and year-to-date return of 11.2%. For deeper insights into UBS’s valuation metrics and growth potential, InvestingPro subscribers have access to over 30 additional financial indicators and expert analysis.

UBS also reaffirmed its capital return plans for 2025, which include increasing the ordinary dividend per share by about 10% and repurchasing up to $2 billion of shares in the second half of the year, for a total of up to $3 billion. These plans are contingent upon maintaining a CET1 capital ratio target of around 14% and achieving financial targets.

The bank intends to actively engage with stakeholders during the consultation process to seek regulatory changes that balance cost and benefit. UBS will also explore measures to mitigate the impact of stringent regulations on its shareholders.

As the largest global wealth manager and a leading bank in Switzerland, UBS emphasizes its commitment to its diversified business model and the successful integration of Credit Suisse, which is in the best interest of all stakeholders. The bank has demonstrated consistent shareholder returns, having maintained dividend payments for 14 consecutive years with a 17.66% dividend growth in the last twelve months. According to InvestingPro’s comprehensive analysis, which includes detailed financial health metrics and future growth projections available in the Pro Research Report, UBS currently trades slightly above its Fair Value.

UBS is currently reviewing the extensive information released by the Swiss Federal Council and will provide further assessment in the future. This news is based on a press release statement from UBS AG.

In other recent news, UBS Group AG has been at the center of several significant developments. The Swiss government has unveiled banking reform proposals that could require UBS to raise up to $26 billion in fresh capital, impacting its capital requirements for foreign units. Despite these changes, the government suggests that UBS can continue paying dividends and pursuing growth, although share buybacks might be temporarily reduced. Jefferies analysts have upgraded UBS’s stock rating from Hold to Buy, citing an expected improvement in capital clarity and a positive earnings outlook, with a new price target set at CHF37.00. JPMorgan has maintained its Overweight rating on UBS, also with a CHF37.00 price target, noting potential regulatory changes that could affect UBS’s capital and shareholder returns. Additionally, UBS is involved in facilitating a potential spinoff or sale of ABB Ltd.’s robotics unit, alongside Bank of America. The Swiss National Bank’s recent foreign exchange interventions, highlighted by UBS, aim to counteract the Swiss franc’s appreciation, which poses challenges for inflation. These developments provide a comprehensive view of UBS’s current financial landscape and strategic involvements.

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