Is UBS deciding to leave Switzerland?

When we think of UBS we think of Switzerland and the thought of UBS leaving Switzerland appears quite outrageous like Swiss chocolates not being available in Switzerland any more however there is a lot more to this story as it evolves.

UBS is the largest swiss bank

Not so long ago it got the business of Credit Suisse at quite cheap valuations which a lot of experts believe were at throw away or bargain valuations.

As the news develops there is a fair possibility that UBS may leave Switzerland by way of moving its headquarters to more lucrative shores.

What has caused this situation?

It is believed the moot point of discord that has caused UBS to contemplate such a move arises from the fact that the Swiss government wants it to have an additional $25 billion in capital.

How we got to such a situation

At the time of the Credit Suisse bail out the Swiss government gave UBS billions as incentive for the Merger and Acquisition incentive to take over the business of Credit Suisse.
This was a smart move by the government of Switzerland as compared to the liquidation of Credit Suisse.
As a result the bank got millions added to its balance sheet. This money which comes from the taxpayers made its account books more robust.
Not only this it boosted it as a much larger bank within the banking sector.
The financial sector is a fragile ecosystem and a bank collapse the size of Credit Suisse can trigger the panic button and hit the economy of the nation hard.
In an attempt to avoid a financial situation that would be a repeat of the 2023 Credit Suisse collapse the Swiss government wants UBS to deduct fully the valuation of its foreign subsidiaries from the parent bank's capital.
This they believe would avoid a 2023 type banking collapse.
This move is viewed as a way to trim the valuations of UBS. Back in 2023 Switzerland had allowed its largest banks to grow so much that their valuation became 10 times larger than the GDP of Switzerland.

If UBS were to fail...

UBS is an important component of the Swiss banking system and going by its size if it were to fail its collapse could destroy the Swiss economy.
UBS is so deeply rooted in the economy of Europe that its failure could cause financial turmoil in the whole of Europe.

UBS would have to answer to its shareholders

Having such high capital demand may not be viable for the bank and it may have to answer some serious questions from its shareholders as well in this regard.

It would not happen in an instant

While the process of pressing the bank into making such a high capital adequacy may be a one that takes a while as the next move may be made in the parliament in the month of May only.
Even UBS would like to take its time and explore every possible opportunity to negotiate and try to arrive at a middle path with the Swiss government before it tries to move its headquarters out of the country.

Where could UBS move?

Dubai seems to be a viable option for the movement as it offers a lot of opportunities for financial innovation and growth.
However, moving UBS the big giant Bank from Switzerland and having the backdrop of the Swiss alps to the shiny sand dunes of Dubai if at all it were to happen would have to wait till 2028 as such major moves take time.

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Posted Using INLEO