UBS: die Bank, die über ein Land hinausgewachsen ist – Financial Times

> UBS chair Colm Kelleher was driving back to Zurich from Bern in March 2023 when his phone rang.
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> The Irish banker was heading home after a weekend of tumultuous negotiations that had culminated in a historic $3.25bn deal to rescue UBS’s rival Credit Suisse.
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> On the other end of the line was Jamie Dimon, chief executive of US giant JPMorgan Chase and a veteran of emergency bank takeovers, calling to offer a piece of advice, even as he thanked Kelleher for his contribution to stabilising the global banking system.
> Dimon — whom Kelleher knew well from his years atop Wall Street rival Morgan Stanley — had a clear message, according to people briefed on the conversation: do not let the Swiss authorities change the terms of the deal to acquire UBS’s traditional adversary.
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> More than three years later, UBS and the Swiss government remain locked in a stand-off over how much capital it must have to guard against disaster, a dispute that stems from the deal struck on that fateful March Sunday.
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> The unusually public confrontation goes to the heart of Switzerland’s economic model and the dilemma of whether a small state with 9mn people can host a financial behemoth such as UBS, whose $1.6tn of assets exceed the size of the entire Swiss economy.
> The bank argues that proposals forcing it to have $20bn more in capital to back its foreign subsidiaries would damage its ability to compete globally. Many of its rivals, especially in the US, are benefiting from a loosening of capital rules.
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> People inside UBS also intimate that senior politicians gave assurances when they asked it to save Credit Suisse, but rowed back on these commitments after the rescue.
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> The saga has prompted some investors to urge UBS to loosen its ties to its homeland and consider relocating its headquarters abroad if the capital reforms are not scaled back. It could even end in a divisive national referendum.
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> While Swiss politicians argue that it is only prudent to protect the public coffers from the risk of bank failure, UBS allies lament the “parochial” mindset adopted by some officials.
> “UBS only exists because of its global reach,” says Davide Serra, founder of Algebris Investments, a UBS investor. “It will be highly incentivised to relocate if the reforms are not watered down. It cannot compete with the likes of Morgan Stanley if it needs to have twice as much capital.”
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> How one crisis led to another
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> The emergency takeover of Credit Suisse was one of the most dramatic moments in European banking since the 2008 financial crisis, ending more than 150 years of rivalry between the two banks.
> Scandals and financial losses dating back over a decade pushed Credit Suisse to the brink of collapse before the Swiss authorities, led by finance minister Karin Keller-Sutter, brokered the rescue by UBS in order to prevent a wider market panic.
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> But the deal sent shockwaves through global finance, in part because regulators wiped out Credit Suisse debt worth $17bn at face value while allowing equity investors to recover $3.3bn. This was a reversal of normal practice, where bondholders’ claims rank higher than those of shareholders. The move triggered lawsuits and reignited concerns over Switzerland’s handling of banks considered too big to fail.
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> By late 2023, Kelleher and Sergio Ermotti — who was brought back for a second stint as UBS chief executive weeks after the Credit Suisse rescue — believed they had quelled political concerns over the takeover. The bank had exited taxpayer-funded government support facilities, put in place as part of the deal, ahead of schedule.
> But in April 2024, Keller-Sutter proposed a “too big to fail” reform package, intended to insulate the state from similar problems in future. She suggested it could lead to UBS having between $15bn and $25bn of additional capital.
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> After two years of acrimony, the government laid out its final reform package last month. Although it watered down some parts, it insisted that UBS fully capitalise its foreign subsidiaries so that in a crisis, their losses could be absorbed or their operations unwound without jeopardising the Swiss parent. UBS puts the capital hit at $22bn.
> Ermotti told the FT this month that the proposals were “not proportionate”, “not targeted” and “not internationally aligned” but Switzerland’s Federal Council — its multi-party executive branch — views the reforms as “necessary”, according to a finance ministry spokesperson.
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> The draft law is now progressing to parliament to be debated, and though the finance ministry says the government is “fully united” on the reforms, Swiss politics is split between those prioritising financial stability and those more concerned about international competitiveness and over-regulation.
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> The left broadly backs tougher rules for UBS, while the right warns against weakening Switzerland as a financial centre. Centrist parties are likely to emerge as kingmakers in deciding the final compromise.
> The finance ministry is prepared to accept some degree of easing during the legislative process, according to people familiar with the matter. But it has also signalled it could revisit other measures if parliament adopts what it considers an overly lenient outcome. Approval is not expected before 2027.

I mean the title alone says it all, doesn’t it? UBS is now a bank of such a size that a 2008-style bailout is no longer doable.

Ermotti reacts by saying that the bailout wouldn’t be necessary and that if it comes to that the bank would sink and not ask for state funds (yeah right), KKS by these new rules which would indeed probably impact UBS’s profitability enough that they would paradoxically seek to compensate it with more risky behavior, but the fact is that UBS probably should in the long run be supported by a larger potential bailer-out, whether because some kind of international organisation was created or simply because they moved.