UBS Dips: Prime Buying Opportunity ? It Is !
Mystery Solved?
I have been wondering.
Why is it that after UBS takeover of Credit Suisse, as a result last year’s US banking debacle (March 2023) rippling effect, the #1 Swiss bank’s stock price still did not have a meteoric rise like its US counterpart $JPMorgan Chase(JPM)$, $Bank of America(BAC)$ and $Wells Fargo(WFC)$ .
Looks like its mystery solved ? (see below)
$UBS Group AG(UBS)$ is pushing the Swiss government to clarify how much more the bank will need to hold in capital buffers after buying $Credit Suisse Group AG(CS)$?
This comes, amid concerns the talks will drag on for months, unnerving investors, sources familiar with the matter said.
In April 2024, the Swiss government has published the “too-big-to-fail” proposals, in response to Credit Suisse’s collapse.
Initially, some of the lender's top executives had been relieved, after seeing the proposals as surprisingly mild & fluid. (see above)
UBS - More capital required?
Two Worries.
However, they have since grown concerned due to signs from Stefan Walter, the new head of Swiss regulator FINMA, that he wants UBS to hold more capital, the people said.
They also worry the government has not clarified whether the $15 billion-$25 billion in extra capital the finance minister said in April UBS may need, is on top of the $19 billion it has already committed to hold to reflect its increased size.
The bank recently detailed its view to the government, with UBS vice president Lukas Gaehwiler, who has worked with Finance Minister Karin Keller-Sutter on the board of a Swiss association, playing a key role in lobbying efforts to limit the capital demands.
KOF Swiss Economic Institute, Macroeconomics professor, Hans Gersbach opined:
There is clearly a need to clarify.
Investors need to know if there are $25 billion more that UBS needs to find and in which timeframe.
So far, representatives for UBS and Switzerland's government declined to comment.
Spokesperson for FINMA said it was important to ensure the resilience of supervised banks and that it supported the government proposals, including on capital.
The capital-related proposals are at the core of Switzerland's efforts to build a more resilient financial system after the dramatic collapse of Credit Suisse shook confidence in its reputation for stability.
The Financial Stability Board (FSB), an international body that monitors the global financial system, said Switzerland should strengthen its banking controls this year.
Conflicting objectives for Financial Institutions
UBS executives believe further capital demands could put it at a competitive disadvantage versus US and European peers.
CEO Sergio Ermotti has hit out at calls for more regulation, saying it risks undermining Swiss banking.
Analysts say, tougher requirements could force UBS to offload more assets to generate capital and could impact its plans to return cash to shareholders.
During a call discussing UBS's first-quarter results, analysts quizzed Ermotti on whether exiting some markets could be a solution to free up resources.
A year-long rally in UBS shares has faded since the draft rules were unveiled, with the stock falling more than -3% since against a near +2% rise among peers. (see above)
Two key UBS investors this year flagged concerns that the bank could be on a collision course with regulators over its size.
Full Capitalisation.
Switzerland's new rules are likely to come into force in late 2025 or early 2026.
The Federal Council is expected to publish a draft of the measures in early 2025, with a consultation period of up to six months to follow.
In May 2024, FINMA's Stefan Walter said he supports a "full capitalisation" of the bank's subsidiaries, which a source familiar with the matter said is likely to mean UBS needs more capital on top of the $19 billion it is preparing to hold.
It is left to be seen if UBS could:
Presents a sound plan to unwind the bank in the event of a crisis.
Mitigate other too-big-to-fail rules to strengthen the regulator's powers get approved.
Hopefully, lead to FINMA - whose views the government takes into account when approving the rules - could require less capital.
A FINMA spokesperson said the regulator should be able to impose additional capital requirements if it detects potential problems related to how supervised firms are being managed.
Risk of further capital demands comes at a delicate time for UBS.
The “new” liquidity rules kicked in earlier 2024 has already mandated UBS to set aside more liquidity in event of stress, as revealed in its first-quarter results.
UBS is also dealing with the huge task of migrating Credit Suisse clients.
In May 2024, CEO Ermotti has told Reuters that any delays to the integration could erode planned cost savings.
My viewpoints : (mine only)
It’s been 15 months since the US banking debacle and based on the latest “stress test” conducted, US banks are in a “better” position to handle stress? (see below)
Like Switzerland, US “bigger” banks have been asked to hoard additional capital for rainy days scenario. It is still in discussion stage.
However, the US banks did not let the “additional capital requirement” stopped them from generating business.
They will deal with it when it comes.
However, the Swiss bank is perhaps “overthinking” it a little and they have (in my view) let the possibility get to them.
There should be room for compromise or maneuvered, with financial institutions, central bank and regulators sit down together and work out a solution that works best for all parties.
Most importantly, get it trashed out firmly and quickly - so necessary in this 21st century business environment.
Should UBS dips more, its good opportunity to load up ! It is the only “big” Universal bank in Switzerland. Do you think Swiss government will allow it to go “Kaputt”?
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Do you think UBS stock price will continue to dip or finds support at the $30 level ?
Do you think Swiss government will allow UBS to collapse in case of bank run, NO !
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I can only say don’t buy fomo
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