The Price Of Rescue: UBS Bristles At Post-Merger Capital Proposals

UBS is pushing back hard against a proposal from the Swiss government and financial regulator FINMA to increase its capital requirements by 50%, describing the move as “extreme” and potentially damaging to its global standing. The sharp response from UBS Chairman Colm Kelleher marks a significant escalation in tensions between Switzerland’s largest bank and the authorities that leaned on it to stabilise the financial system by acquiring Credit Suisse in 2023.

Credit Suisse Collapse and UBS’s Role

The forced merger of Credit Suisse into UBS was one of the most significant moments in modern Swiss banking history. Orchestrated in March 2023 amid fears of systemic contagion, the emergency deal saw UBS step in to prevent a broader financial crisis. The government and the Swiss National Bank backed the transaction with liquidity guarantees and loss protections, presenting UBS as the reluctant saviour of the country’s financial credibility.

At the time, the focus was on speed and stability. UBS took on substantial risk but gained a unique market position, effectively becoming Switzerland’s sole global systemically important bank (G-SIB). That position has since drawn increased scrutiny from Swiss regulators keen to ensure the enlarged institution can withstand future shocks.

The Government’s Capital Proposal

The proposed measure, backed by the Swiss finance ministry and FINMA, would require UBS to increase its capital buffer by 50%. The plan is aimed at reducing systemic risk, increasing the bank’s resilience, and avoiding future taxpayer bailouts.

The authorities argue that the scale of UBS post-merger—combined with its role as the sole G-SIB in Switzerland—warrants stronger safeguards. In their view, the integration of Credit Suisse’s riskier assets, legal liabilities, and operational complexity makes the case for higher capital reserves self-evident. Swiss policymakers believe the public deserves a stronger safety net after being asked to backstop the banking sector during last year’s crisis.

UBS’s Rejection

UBS Chairman Colm Kelleher has publicly rejected the proposal, calling it “extreme” and unnecessary. In his view, UBS already operates with a robust capital base and meets international standards under the Basel III framework. He warned that such a sharp regulatory burden could have unintended consequences, undermining UBS’s global competitiveness and signalling that Switzerland is over-regulating its flagship financial institution.

Kelleher also emphasised that UBS had stepped in during a moment of national crisis at the request of the authorities, implying that it is now being unfairly penalised for performing a public service. The merger, he argues, has stabilised the Swiss banking system—yet the regulatory response risks undercutting the bank’s ability to function effectively in international markets.

Timing and Operational Pressures

The proposal comes at a particularly sensitive time. UBS is still in the process of absorbing Credit Suisse’s assets, operations, and staff. The scale of integration is significant and complex, involving divestments, legal reviews, system consolidations, and culture shifts. Additional regulatory demands—particularly of this magnitude—are seen by the bank as ill-timed and potentially disruptive to a delicate restructuring process.

There are also concerns about the potential impact on strategic flexibility. A steep capital increase could restrict lending activity, delay growth initiatives, or force the bank to raise additional funds under pressure. It may also affect shareholder returns, reducing UBS’s appeal in an already competitive global banking environment.

A Turning Point for Swiss Financial Regulation?

The dispute raises larger questions about the direction of Swiss banking policy. While Switzerland has long prided itself on financial stability, the Credit Suisse debacle exposed regulatory weaknesses and prompted calls for stricter oversight. The UBS proposal reflects a broader effort by the state to reassert control and protect its financial system.

However, there is a risk that Switzerland, in tightening its rules too aggressively, could make its financial sector less attractive to international investors. Critics of the capital plan argue that it could discourage innovation and growth while sending a message that post-crisis cooperation with the government carries long-term penalties.

The UBS response also echoes post-crisis tensions seen elsewhere—such as JPMorgan’s objections to regulatory burdens following its acquisition of Bear Stearns in 2008. In both cases, institutions that acted during crises later found themselves subject to enhanced scrutiny and stricter rules.

What Comes Next?

A period of consultation is now expected. UBS will likely push for a phased implementation, lower thresholds, or a more tailored approach to capital planning. The Swiss government and FINMA will need to balance political pressure for tougher oversight with the practical realities of maintaining a strong, internationally competitive banking system.

Markets will watch closely for signs of compromise. So far, UBS’s share price has remained stable, suggesting that investors are not yet pricing in major disruption. However, the tone of public statements indicates that the bank is prepared to challenge the proposal forcefully.

Conclusion

The standoff between UBS and Swiss regulators underscores the long-term cost of its Credit Suisse rescue. While the acquisition may have saved the national banking system from a deeper crisis, it has also exposed UBS to greater regulatory pressure and public scrutiny. The proposal for a 50% capital increase reflects legitimate concerns over systemic risk—but also illustrates the friction that arises when public policy collides with private enterprise. The outcome of this dispute will have lasting implications for Swiss finance and the role of state intervention in crisis management.

Author: Brett Hurll