UBS Group AG (UBS) may need to add roughly $16 billion in equity capital due to regulatory rule changes, and its CEO has indicated the group is weighing the impact of having its headquarters in Switzerland on its long-term competitiveness.
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UBS Group AG (UBS) reported third-quarter net profit of $2.69 billion, compared with $2.48 billion a year earlier.
The CEO of UBS Group AG (UBS) said the group is evaluating whether it remains competitive with its headquarters and operations based in Switzerland, as the country plans to impose stricter capital regulations on the bank.
On an analyst call following the third-quarter results, UBS Group AG (UBS) CEO Sergio Ermotti said: "We are evaluating the impact of having our headquarters rooted in Switzerland on our long-term competitiveness. Clients recognize Switzerland's strengths just as we do, but today a Swiss financial license alone is far from enough."
Switzerland's parliament plans to introduce higher capital requirements for UBS Group AG (UBS)'s overseas subsidiaries, and the bank has clashed with domestic lawmakers over the matter. The reform is part of a comprehensive overhaul of Swiss banking rules, set against the backdrop of Credit Suisse's collapse, which ultimately led to UBS taking it over. UBS Group AG (UBS) has internally discussed several alternatives: acquiring a U.S.-based financial institution and relocating its headquarters, merging with a European peer, or selling the company entirely to a U.S. company.
Ermotti told analysts that the bank will not rush its decision, and that its top priority is to protect the long-term interests of shareholders, clients and employees. Ermotti noted: "We are once again at a critical crossroads, and the direction of the Swiss financial center for decades to come will be set at this moment."
Switzerland's parliament is currently reviewing a bill that, if enacted, would require UBS Group AG (UBS) to add about $16 billion in equity capital. Ermotti said the upper house's vote on the proposal last month was "highly concerning." In the coming weeks, the lower house will vote on the set of regulatory measures. He said UBS Group AG (UBS) will continue constructive communication with parliament to seek a solution that balances domestic financial stability while avoiding imposing unreasonable costs on shareholders and undermining the bank's long-term competitive position.
The remarks came as UBS Group AG (UBS) reported higher year-on-year third-quarter net profit, driven by increased inflows into its wealth management platforms in Asia-Pacific and the Americas. The Swiss banking group's third-quarter net profit was $2.69 billion, up from $2.48 billion a year earlier, but slightly below the consensus estimate of $2.71 billion compiled by banks. UBS Group AG (UBS)'s Global Wealth Management business attracted $55.1 billion in net new assets, an annualized growth rate of 4.5%, supporting the results, with particularly strong inflows in Asia-Pacific and the Americas. Total revenue rose to $13.35 billion from $12.76 billion, above the market expectation of $13.1 billion.
UBS Group AG (UBS) said investor sentiment remained cautious heading into the fourth quarter. The bank cautioned that trading volumes across business segments may see a "normal seasonal sequential decline" in the fourth quarter. UBS Group AG (UBS) expects net interest income in Global Wealth Management to grow by a low single-digit percentage quarter on quarter, with Personal & Corporate Banking net interest income edging slightly higher. The bank cautioned that, compared with last year's high base, fourth-quarter performance figures for the Global Markets division may appear weaker, while Global Banking revenue is expected to rise quarter on quarter.
UBS Group AG (UBS) expects its core Tier 1 capital adequacy ratio, a measure of financial soundness, to reach or come very close to its 14% target by the end of 2026, even after factoring in funds set aside for its 2027 share buyback program. As of the end of September, the bank's core Tier 1 capital adequacy ratio was 14.7%, compared with 14.8% a year earlier.
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