Ermotti’s Growth Plans at UBS Threatened by Regulation

Ermotti’s Growth Plans at UBS Threatened by Regulation

One year after the CS rescue, UBS is feeling more confident than ever, but potential stricter capital requirements imposed by parliament could limit the bank’s ambitions. The wave of regulation is beginning to take shape, with more than 14 million francs being allocated for nine months, sparking outcry from parliamentarians in the Federal Palace. UBS encountered political headwinds for the first time since the CS rescue, with criticism directed at Sergio Ermotti’s salary and top management’s wages.

Despite the backlash, UBS announced share buybacks worth up to two billion francs, doubling down in the face of political sensitivities. The Federal Council is expected to kick off a debate about future rules for systemically important banks in April, with UBS being a primary target for regulation. However, the bank remains steadfast in its ambitions to grow and compete with big American rivals, with the support of shareholders and a positive stock market reaction.

As discussions with parliamentary leaders reveal, UBS must navigate potential regulatory challenges in its growth plans. The upcoming reform will focus on crisis plans that are actionable in times of crisis and aim to prevent future banking crises. The key point of contention is around stricter regulations on equity capital, with demands for higher equity ratios to increase customer trust and prevent bank runs. UBS is pushing back against these demands, citing potential negative impacts on shareholders and customers.

The debate over stricter regulations is gaining momentum, with various voices in parliament expressing differing opinions on the extent of the proposed changes. From demands for significantly higher equity ratios to calls for moderation in capital requirements, the future regulatory landscape for UBS remains uncertain. The upcoming parliamentary investigative commission report on the CS crisis is expected to add further complexity to the debate, with potential delays in the reform process.

Amidst the regulatory uncertainty, the Financial Markets Authority (Finma) emerges as a winner, with broad support for a senior manager regime to hold individual top managers accountable in future banking scandals. The ongoing banking reform process will continue to evolve, shaping the future of UBS and the Swiss financial industry as a whole.

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