What UBS Is Really Worried About
The rumors surrounding Switzerland’s largest bank show no signs of slowing down. According to reports in the Sunday press, UBS leadership is not only considering relocating its headquarters – but something else is causing even greater concern.
Last week, financial news outlet «Bloomberg» (article behind paywall) reignited a long-standing debate: UBS may move its headquarters out of Switzerland if the regulatory framework becomes too restrictive.
Yet according to the Swiss Sunday paper «SonntagsBlick», UBS executives are even more preoccupied with the potential threat of a foreign takeover than with the idea of relocating. Insiders say the bank’s strategists are treating this scenario with growing seriousness and have begun to address it in their lobbying efforts.
Sitting on Underutilized Capital
This concern may not be unfounded. If capital requirements were increased by 50 percent – as some have proposed – UBS’s share price could drop by as much as 25 percent.
At the same time, the bank sits on a significant amount of underutilized capital: «around 18 to 20 percent of risk-weighted assets,» according to the newspaper.
US Banks on the Sidelines
In other words, the world’s largest wealth manager could become a highly attractive acquisition target for US giants like J.P. Morgan, Morgan Stanley, or Bank of America. «Relocation is the least concerning scenario,» a UBS insider told «SonntagsBlick». «The worst case is a takeover – that could become real if capital buffers reach 15 to 20 percent.»
A UBS spokesperson declined to comment on the various scenarios.
Relocation Would Cost UBS Billions
According to another Swiss Sunday paper, «NZZ am Sonntag», moving the bank’s headquarters abroad would come at a steep price. «Relocating the parent company would trigger Swiss withholding tax on retained earnings,» Peter Hongler, a professor of tax law at the University of St. Gallen, said.
Given UBS’s profit reserves of 29 billion francs, the bank could face a tax bill of up to 10 billion francs. Hongler emphasized that the exact tax implications would depend on which legal entity and operations are moved.
Major Unknow
Another major unknown is how clients would respond. UBS has built its entire business model around serving the wealthy and ultra-wealthy – clients who know exactly why they choose to place their assets with a Swiss bank. A move to another jurisdiction could lead many to withdraw their funds.
