UBS under pressure: 90% capital for foreign branches

Context

In brief

• The Council of States calls for 90% capital for foreign subsidiaries.
• UBS challenges the capital measure.
• Blick cites at least eight institutions, with Morgan Stanley among the names.
• Relocating the headquarters could affect tax revenues.

Key facts

• Decision → 90% core capital for UBS's foreign subsidiaries
• Institution → Council of States
• UBS's reaction → political outcome described as not a compromise
• Potential counterparts → at least eight globally active financial institutions
• Name cited → Morgan Stanley
• Analyst → Rudolf Minsch, chief economist at Economiesuisse
• Second expert → Aymo Brunetti, professor at the University of Bern
• Tax effect → tax revenues if the headquarters are relocated

The decision and assumptions about the future

ZURICH - The battle over the new rules for UBS is entering a new phase following the Council of States' request: the large Swiss bank should support its foreign subsidiaries with core capital amounting to 90%. UBS challenges the measure.

UBS described the political outcome as «not a compromise».

According to an investigation by Blick, the upper chamber's decision has reignited speculation about a possible merger. At least eight globally active financial institutions are said to have expressed openness to talks with UBS's management. Among the names cited is Morgan Stanley, a US institution.

The discussion stems from two distinct but related elements in the debate: the capital requirement for foreign operations and possible talks with other global groups. The source thus describes the merger as a possibility reignited by the political decision.

Rudolf Minsch, chief economist at Economiesuisse, argues that UBS would not give up its corporate banking business in Switzerland. Any downsizing, however, could create difficulties, especially for small and medium-sized enterprises, particularly with regard to larger financing needs. Companies could therefore be forced to seek financing elsewhere, including abroad.

Aymo Brunetti, a professor at the University of Bern, takes a more reassuring view. In his opinion, a possible merger or relocation of the headquarters would be unlikely to have immediate consequences for private and corporate clients. UBS would continue to have an interest in keeping its private and corporate banking activities in Switzerland because they are profitable. The most visible effects could concern tax revenues if the headquarters were relocated.

Brunetti also considers both a merger and a relocation of the headquarters unlikely at present. Swiss identity would remain important, especially in wealth management; becoming a US bank could make UBS less attractive to some international clients, particularly in Asia. The new capital requirement could ultimately make expansion in the United States more difficult, one of the reasons for UBS's strong opposition, according to the economist.

Operational details

For those who live or work in Switzerland, the practical point is not choosing a future partner for UBS, but distinguishing which activities would be affected in the different scenarios described by the experts. The source compares corporate lending, customer services and tax domicile: three connected but not equivalent areas.

Four scenarios to keep separate

The first concerns corporate banking. If the bank were to scale back its operations in Switzerland, according to Rudolf Minsch, small and medium-sized enterprises would be the most exposed when seeking large amounts of financing. In this scenario, the issue is not presented as a general difficulty for every customer, but as the risk of having to seek credit elsewhere, including outside the country. For a company, the concrete question is therefore how dependent it is on UBS for its larger transactions.

The second scenario is a merger or relocation of the headquarters. Aymo Brunetti considers immediate consequences for private and corporate customers difficult, because UBS would have an interest in retaining private and corporate banking in Switzerland, which are profitable activities. This reduces the idea of an automatic effect on banking relationships, without eliminating the issue of the headquarters.

For those who manage conti bancari in Svizzera, this distinction helps avoid confusing service continuity with broader economic consequences. The third and fourth scenarios in fact concern the taxation of the headquarters, the international appeal of Swiss identity and UBS's ability to expand in the United States. The source does not present them as a single outcome, but associates them with the different hypotheses. The decisive variable therefore remains the form that any change might take, not merely the fact that names of possible partners are circulating.

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Key points

An operational reading of the matter starts with a distinction: the tightening of capital is a political decision requested by the upper house, while the merger remains a possibility linked to the names mentioned by Blick. The verification must be updated without turning scenarios into established facts.

Four steps to follow developments

1. Separate the formal fact from the market rumor. In one’s review, keep distinct the request concerning the core capital of foreign branches and the openness to talks reported by the investigation. Morgan Stanley should therefore be considered among the possible interlocutors mentioned, not as an announced merger.

2. Identify the area concerned. For a private client, the reference is to private banking activities; for a company, to corporate banking and more substantial financing. This distinction avoids automatically extending the effects discussed by economists to every service.

3. Assess the need for credit. A small or medium-sized company can assess whether any downsizing would make it necessary to seek financing elsewhere, including abroad. This is the scenario indicated by Minsch, not an undifferentiated forecast for all companies.

4. Keep services and headquarters separate. If the interest is fiscal, the issue concerns the possible relocation of the head office and tax revenues; if it concerns the banking relationship, Brunetti’s assessment is linked to the continued presence in Switzerland of private and corporate activities. To follow the former aspect, one can consult dichiarazione delle imposte, without confusing the two areas.

The final check consists of comparing each new development with the positions of UBS, Minsch and Brunetti. As long as the source speaks of possibilities, the reader can use these four filters to understand whether a news item concerns capital, credit, clients or the tax headquarters. This method avoids immediately attributing to private clients an effect that Brunetti places mainly at the level of the headquarters and tax revenues.

For a personal check of your income and taxes, use calcolatore stipendio/imposte.

Source: tio.ch