Don’t Punish UBS for Doing the Right Thing

When UBS Group AG acquired Credit Suisse in March 2023, its board of directors thought they were doing their duty. They'd initially concluded that a merger of the two firms wasn’t desirable, but after Credit Suisse suffered a major drop in its stock price and a substantial wave of deposit and net asset outflows a few weeks later, they were urged to reconsider. Swiss officials told the board that a takeover of Credit Suisse by UBS was the government's preferred option. The alternative: widespread panic in financial markets and banking systems around the world.

Two years later, you couldn’t blame UBS for regretting its decision even with a stock price that has gained 74% since the deal was announced. With a balance sheet now dwarfing Swiss gross domestic product by almost 80%, lawmakers are rushing to contain the risk a single large bank poses. Earlier this month, the minority Social Democratic Party proposed reforms to boost UBS's capital reserves by almost $40 billion, while banning share buybacks and deferring bonuses and dividends for up to 10 years. Another proposal backed by the Swiss National Bank and regulatory body FINMA would force UBS to fully deduct the value of foreign subsidiaries from the capital of its parent, requiring it to hold an additional $25 billion of capital. So detrimental are these proposals to the bank's competitive position globally that executives are reportedly exploring relocating its headquarters to a different country.