A year after the bankruptcy of Credit Suisse, the Swiss government announced the likelihood that UBS would have to find up to $27 billion to absorb potential losses and prevent a banking collapse, which could be a very sensitive event for the country’s financial system.
The mentioned financial institution disagreed with the specified statement and hastened to challenge it. The bank has officially declared that its finances are robust. The lender also noted that such statements by the Swiss leadership could have unfavorable consequences. In this case, it implies a negative impact on the perception of the country as a global financial center.
On Wednesday, April 24, during a speech at the annual shareholders’ meeting, UBS Chairman Colm Kelleher expressed his concern about the current discussions, which could force the bank to hold more cash and other liquid assets. According to him, additional capital is the wrong remedy.
Colm Kelleher also stated that there can be no regulatory solution for a broken business model. In this case, Credit Suisse is meant. UBS became the owner of the mentioned bank, which has long been its main competitor, in March 2023. The relevant deal was implemented with the participation of the Swiss Government, which at that time made efforts aimed at preventing the financial crisis. The acquisition of Credit Suisse by UBS has provoked controversy in Switzerland. Colm Kelleher says that this deal has strengthened the country’s position as a leader in the area of wealth management.
The chairman of UBS also stated that this financial institution is not big enough to go bankrupt. Separately, he noted that the lender has one of the highest capitalization rates in Europe. According to him, the bank has sufficient financial resources to absorb losses amounting to more than $200 billion. In this context, he noted that trust is not amenable to regulation. According to him, not too low capital requirements forced Credit Suisse to resort to historic rescue measures.
After the Swiss government released its recommendations in April as part of the banking sector Stability report, the value of UBS shares fell by more than 9%. This ended the extraordinary growth of the corresponding indicator, which began after the acquisition of Credit Suisse last year. Over time the positive dynamic may recover.
The Swiss government says it is necessary to tighten capital requirements. In this context, it was noted separately that the relevant requirements are particularly actually for UBS.
Anke Reingen, banking analyst at RBC Capital Markets, said UBS investors’ concerns were justified. The corresponding sentiment is related to the fact that an increase in the amount of capital that the bank must hold in reserve will cut funds that can be returned to shareholders or deployed to increase the profit indicator.
Over the past year, the value of UBS securities has increased by more than 40%. Citi analyst Andrew Coombs says that financial institution stocks are currently more vulnerable to decline as a result of the execution risk associated with the Credit Suisse integration.
Colm Kelleher supports the pay package of UBS CEO Sergio Ermotti for 2023, which was negatively perceived by shareholders. The media reports that last year Mr. Ermotti earned 14.4 million Swiss francs ($15.9 million).
As we have reported earlier, UBS Plans to Shut Thousands of Smaller Credit Suisse Asia Accounts.
