UBS expansion plans ruined by new Swiss bank capital regulations

UBS might need to slow its roll because Switzerland’s finance honchos just rolled out some tough new rules that’ll make it pricier for the bank to grow. In an interview, the country’s finance minister threw down the gauntlet, saying that UBS, along with other big banks, will need to beef up their capital if they want to keep doing business big time.

Switzerland’s finance minister dished the dirt in a chat on Saturday, explaining that if these new rules from Wednesday hit the books, UBS will need to stash more cash. They’re gunning to keep a Credit Suisse-style collapse from happening again, and it looks like UBS is caught in the crossfire.

“In short, growth will become more expensive,” she quipped.

Capital Clamps Tightening

Digging into the details, the plan wants to shake up how banks back their foreign outposts, pumping the must-have equity from 60% to a full 100%. “If we adjust this regulation now, it will have consequences for the growth and size of UBS,” the minister pointed out, adding that it’d smooth over some cross-border regulatory wrinkles when things go sideways.

Analysts are tossing around some big numbers, guessing UBS could need to squirrel away an extra $10 billion to $15 billion. That’s a lot of cheddar, especially considering the CEO, Sergio Ermotti, pulled down a cool 14.4 million Swiss francs last year.

The finance minister wasn’t shy about calling that out, either, suggesting UBS is shooting itself in the foot with these fat paychecks.

After gobbling up Credit Suisse and bulking up to twice the size of the Swiss economy, UBS hoped the government would chill on the capital demands.

No such luck.

The feds are all jittery, and now UBS’s plans for buying back shares and making investors happy might get kicked down the road.

The government wants to pump up the Swiss financial watchdog, Finma, giving it more muscle to make sure banks don’t mess up like Credit Suisse did. But here’s the kicker: they’re balking at letting Finma slap big fines on banks that step out of line.

It’s a head-scratcher that makes me wonder if they’re playing too nice.

Capital Conundrums and Crises

Credit Suisse didn’t exactly implode because it was broke. It was more about confidence, guys. When folks started doubting whether the bank could climb out of the hole its bad management had dug, things got shaky. Credit Suisse was keeping its subsidiaries afloat on borrowed money instead of solid investor cash. Finma let them play a bit fast and loose with how they valued things, which didn’t help.

By the end of last year, this regulatory sleight of hand had given Credit Suisse a 6.2 billion Swiss franc cushion that it wouldn’t have had otherwise. UBS started this year with a comfy 11 billion francs more than what the rules say they need, but these new changes aren’t going to be a walk in the park.

Here’s the real rub: Credit Suisse’s lack of solid capital made it tough to sell off foreign units when the crunch came. That strangled their ability to pivot or patch things up during the crisis. The new game plan is to make banks fully back their overseas branches with real money from January onward. UBS might not be thrilled, but it sounds like a solid idea.

Plus, they want to stress-test banks more intensely, making sure they can handle whatever the economy throws at them without doubling up on risks. This could get messy and make some waves, especially for a giant like UBS that’s now a major player on the Swiss scene.

So, while UBS and its shareholders might be in for some discomfort, considering how big a shadow the bank casts over Switzerland, it could have been a whole lot worse. These tweaks and twinges are all about keeping things stable and avoiding another banking faceplant.