Introduction
UBS may face limitations on future share buybacks due to new proposals from the Swiss government regarding higher core capital requirements.Context
On June 6, the Swiss government announced recommendations aimed at fortifying Switzerland's financial center, particularly in light of the 2023 collapse of Credit Suisse. The proposals specifically target the capital requirements for UBS’s foreign units and are part of an effort to enhance the overall stability of the banking sector.Developments
Despite these proposed changes, UBS reaffirmed its capital return plans for 2023, including share buybacks. The bank has committed to providing updates on its 2026 capital return ambitions alongside its fourth-quarter and full-year financial results for 2025. The government stated that dividend payments and organic growth would still remain feasible, provided they occur during appropriate transition periods and profits are generated.However, they indicated that UBS might need to implement fewer share buybacks temporarily, which could result in a slightly lower return on equity while also reducing financial risks. UBS Chairman Colm Kelleher stated that the bank still intends to repurchase shares worth $3 billion in 2025, despite the upcoming regulatory changes and the uncertainty in the global economic landscape.
While UBS is expected to continue growing its foreign subsidiaries and pursuing acquisitions, these endeavors will now incur higher costs due to the necessity of being fully financed by core capital. The government clarified that these measures could render foreign growth initiatives more expensive.
Although the regulatory changes are not anticipated to take effect until 2027, UBS remains committed to its objectives, targeting an underlying return on CET1 capital of around 15% and a cost/income ratio of under 70% by the end of 2026.