Escape across the ocean: how Switzerland can be left without the largest bank
Switzerland's largest bank, UBS, is threatening to leave the country and move to the United States. It's all about the onerous capital requirements for this financial colossus. The bank's executives have already held preliminary talks with representatives of the Donald Trump administration. What is happening has become another milestone in the decline of the Swiss banking industry — and the European economy as a whole. Details can be found in the Izvestia article.
Extreme elevation
According to the American edition of the New York Post, a delegation led by Chairman of the Board of Directors of the bank Colm Kelleher and CEO Sergio Ermotti probed the ground about the move. This step may include the purchase of an American bank or a merger with it. It is symptomatic that a UBS spokeswoman declined to comment, but did not deny that she had met with Trump's representatives about a potential new headquarters in the United States. A spokeswoman for Treasury Secretary Scott Bessent also declined to comment and did not refute the reports from unnamed sources.
UBS is not only the largest, but also a very old bank. Direct continuity with the Winterthur Bank has been traced since 1862. In 1998, through a series of mergers, UBS became a major player in the Swiss market and one of the key global players. He is a global leader in wealth management. Its investment and direct credit divisions are equally important, although the values of the latter have decreased slightly since the financial crisis of 2008. In fact, UBS is the epitome of the "Swiss bank" archetype. Everyone else in this category is far behind. For example, the second most important bank in the country, Zurich Cantonal, is about 10 times inferior to UBS in terms of turnover, market capitalization and assets.
The move of this mastodon to America seems all the more fantastic. But there are quite good reasons for such a step. The Swiss government, fearing another financial crisis, is introducing new capital requirements so that the backbone bank has a buffer against losses. But for this, UBS will have to spend a huge sum of $ 26 billion. The bank, in turn, stated that it strongly disagrees with the extreme increase. "These changes will lead to capital requirements that are neither proportionate nor internationally agreed," the credit institution said in a statement.
At the moment, UBS is already doing well. Over the past year, European banks' quotes have increased by an average of 50%, but the Swiss leader's has increased by only 24%. This is not least due to the uncertainty surrounding the situation with capital reserve standards.
The mystery is in the past
Moving to the USA can make life much easier for a Zurich-based credit institution. The regulatory environment in America is much less burdensome. In addition, there are ways to circumvent some of the limitations that still exist. For example, it can merge with any number of medium-sized banks without being burdened by the so-called deposit cap, which applies to American banks when expanding through acquisitions. Thus, JPMorgan Chase megabank is prohibited from making major acquisitions, as this would exceed the limit and would allow it to control more than 10% of all bank deposits.
Of the possible deal options, the American press highlights the medium-sized bank PNC Financial from Pittsburgh, which is being offered for sale, as is the Bank of New York. Their market value is $79 billion and 74 billion, respectively. Such a merger would be well within the power of UBS, whose market value is $126 billion. Most likely, it will lead to an explosive increase in capitalization (American banks, with the same levels of operational activity and profits, are usually much more expensive than "Europeans").
It is unknown how the story of the UBS move will end. Perhaps this is just an attempt to blackmail the government of the country in order to obtain concessions. But in any case, this is a signal that everything is completely out of order with the Swiss banking system. For a long time, the Swiss were considered exemplary bankers, taking advantage of their vast accumulated experience and centuries of state neutrality, which ensured reliability and banking secrecy. In the 21st century, everything began to change. More than 10 years ago, US pressure forced the Swiss to give up banking secrecy, effectively equalizing the country's credit institutions with any other (although the acquired competencies still provided the Swiss with a comparative advantage in sectors such as wealth management and investment).
Left without a competitor
And in 2023, there was a complete collapse on a Swiss scale: Credit Suisse bank, the country's second largest and main competitor to UBS, collapsed. The problems did not arise suddenly, rather it was a slow-motion crash over the years. The bank has been involved in a variety of stories, from financing drug trafficking to tax evasion and the Archegos Capital case in 2021, which cost it $5.5 billion in losses. Constant scandals and losses have undermined the reputation of the credit institution and the trust of investors. Unsuccessful restructuring attempts and management changes have not led to a clear plan to return to profitability. Customers started withdrawing funds en masse.
In mid-March 2023, amid the panic after the collapse of the American banks SVB and Signature Bank, the shares of Credit Suisse collapsed. Investors and customers fled the bank, fearing its insolvency. An attempt to get $50 billion in support from the Swiss Central Bank failed to stop the panic. After that, there were no options left, except for the takeover of Credit Suisse by its main competitor, UBS.
But the current story is actually a continuation of that one. By acquiring Credit Suisse, UBS has acquired assets exceeding the entire Swiss GDP. It has become not just a backbone bank, but a completely dominant one in the country's financial sector. That is why the government decided to additionally insure him against problems (de facto, with the money of UBS itself). Indeed, in case of problems with the bank, the entire economy of the country may be "on its side." The only possible option would be to nationalize it, and given that in Switzerland the government has neither the great desire nor the ability to manage private enterprises, the consequences may be the most unfavorable.
All these problems actually have a good echo with the difficulties of the "big" Europe. Although Switzerland is not a member of the EU, its economic system is inextricably linked to the European one. The European Union is in stagnation, with no end in sight: some economies (Germany, Finland, etc.) are experiencing a recession lasting several years. Labor productivity and per capita GDP are falling, and companies are experiencing additional problems due to excessive regulation. All this is multiplied by the sharp rise in energy prices caused by the conflict with Russia and the forced severance of ties by the EU.
As a result, a situation arises when not people or individual industries are relocated, but entire companies — and huge ones at that. Moreover, the Americans are now consciously pursuing a policy of attracting corporate giants from Europe to themselves. The situation in the foreseeable future will clearly be favorable for this.
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