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When I told my best friend I was getting married – and subsequently asked him to be my best man – his response was, “Of course. Who else were you going to ask? ____ _______?”
The first two words probably would have sufficed. Listen to the whole response, though, and it’s massive shade thrown on the presumed runner-up.
That’s the context through which one might choose to read a recent Bloomberg report that UBS is considering moving its headquarters out of its home country on the likelihood the Swiss bank could be forced to hold tens of billions of dollars more in capital. One long-running proposal, backed by UBS’s regulator, Finma, is thought to put the increase at $25 billion. A more recent one, from Switzerland’s minority Social Democratic Party, would put it around $40 billion.
UBS – especially after (being goaded into?) absorbing Credit Suisse in 2023 – is far and away Switzerland’s largest lender. So the rumor that UBS is thinking of pulling up its tent stakes could be read as: “Good luck with that. Who’s your big bank now? Julius Baer?”
Tension between the bank and the Swiss government over the prospect of increased capital requirements is not new. The Swiss government last April outlined 22 measures to strengthen regulation for banks deemed “too big to fail.” But UBS’s counter has been more forceful since it became clear that other countries – particularly the U.S. – would be slower to adopt the Basel endgame.
Switzerland implemented Basel III reforms in full in January, though Finma has indicated it would be willing to stagger UBS’s increased capital requirements over a number of years.
But UBS CEO Sergio Ermotti, at a conference last week, said “a longer transition period doesn’t change the substance” of Finma’s demands, adding that shareholders and clients often account for the full brunt of a course of action – no matter the timeline – at the start.
“Excessive capital requirements or other undue limitations on our international business would penalize our diversified global presence … and damage the competitiveness of Switzerland’s economy,” Ermotti and UBS’s chair, Colm Kelleher, wrote last week in a letter to shareholders. “Any such requirements would also be out of step with the many measures to strengthen the competitive environment adopted by other leading financial centers.”
The executives emphasized they remain committed to a “constructive dialogue” and would “continue to contribute our facts and arguments so that a reasonable solution can be found.”
UBS has suggested to Swiss lawmakers that it might limit its investment bank such that it would account for 30% of the lender’s total business, Reuters reported Wednesday.
At issue is the struggle between ideal and compromise, public good vs. commerce. And on ideals, Switzerland may prove a tough foe. Neutrality – for which the Swiss are famous – is not just a diplomatic position. It’s a lived value, where what “should be” is prized. It would be easy to assume the Swiss would be the least likely to back down from Basel reforms. After all, where is Basel?
The question, then, is, where does UBS belong, if not Switzerland? Is it pan-European? One might argue UBS’s ideals on climate may be more fluid than the most progressive banks on the continent. Dutch lender ING this week became the first global systemically important bank whose climate goals were validated by the Science-Based Targets initiative as being in line with efforts to limit global warming to 1.5 degrees Celsius.
By contrast, UBS, in a sustainability report published last week, pushed back by a decade – to 2035 – the time frame by which it aims to decarbonize its own operations. UBS cited its absorption of Credit Suisse – specifically, the bank’s newly “enlarged corporate real estate portfolio” – among reasons for the delay.
UBS also removed from its sustainability report a section on “environmental, social and governance objectives in the compensation process,” and said the bank will foster “no direct link between senior management compensation and specific climate goals.” However, an “environmental and sustainability” objective will remain part of executives’ nonfinancial performance assessment, the bank said.
Not that European bank culture is a monolith. HSBC last month delayed its net-zero emissions goals by 20 years – though some may argue Brexit distances HSBC from Europe.
Is UBS British in spirit, then? HSBC, after all, threatened to decamp its headquarters from London in 2010 if the U.K. government were to have broken up some of the nation’s largest banks in the wake of the 2007-08 financial crisis. It considered moving to Hong Kong in 2015 – as Asia had become the greatest source of its profits – but opted to stay put after a 10-month review.
Is UBS American by attitude?
UBS pays its bankers closer to U.S. compensation levels than other European banks. Ermotti received just over $17 million for 2024, according to the bank’s annual report. That continues his streak atop the European bank pay chain; he was the continent’s best-paid bank CEO in 2023, also – pulling in $15.9 million.
That’s slightly ahead of European contemporaries like Santander Chair Ana Botin (€13.8 million, or $14.9 million) and UniCredit CEO Andrea Orcel (€13 million) and well ahead of British ones like HSBC CEO Georges Elhedery (£5.4 million, or $6.8 million – though he’s in his first year as CEO). HSBC has been working on a deal that would cap Elhedery’s potential annual earnings at £15 million ($19.4 million), cutting his fixed pay in half, according to Sky News. HSBC’s rival Barclays reportedly aims to limit CEO C.S. Venkatakrishnan’s annual earnings at £14 million, similarly cutting his fixed pay in half.
The top-paid U.S. big-bank CEOs, by comparison, are making nearly $40 million a year. JPMorgan Chase CEO Jamie Dimon took in $39 million for 2024, and Goldman Sachs CEO David Solomon made the same. Even non-CEO executives at Goldman, for example, are far out-earning Ermotti. The bank’s president, John Waldron, received $38 million in 2024. Goldman’s CFO ($27 million) and general counsel ($22.5 million) out-earned Ermotti.
So maybe money isn’t the right comparison. UBS is doing one very American thing in its annual report, though: omitting references to diversity, equity and inclusion.
“We are subject to separate, and sometimes conflicting, ESG regulations,” UBS said in the annual report’s section on legal risks. “In certain jurisdictions, we are required to set diversity targets or other ESG-related goals that are considered illegal or contrary to regulatory expectations in other jurisdictions.”
The retreat from DEI follows walk-backs from nearly all of the largest U.S. banks in recent weeks.
UBS isn’t alone in Europe in its hedging. Santander said last month that bonuses would no longer take into account executives’ efforts to place women in management positions in countries where government policy “does not support establishing specific inclusivity objectives,” according to The Wall Street Journal.
Maybe by adopting a European attitude here, a British one there and an American one elsewhere, UBS gives a truly global vibe.
To be clear, UBS has never projected anything other than a Swiss identity. “Part of our success is our Swissness,” Ermotti has said, adding that absorbing Credit Suisse was “a great opportunity to turn a tragedy into something good.”
But in considering de-emphasizing Switzerland – at least from a headquarters standpoint – UBS may be trying to avoid some of the pitfalls American banks have found as a result of coerced coupling. Dimon has gone on record as saying JPMorgan’s board would never again vote to take on a Bear Stearns-like acquisition. New York Community Bank’s back-to-back acquisitions of Flagstar and Signature nearly killed it.
"If you step in to do the right thing – which in our case was bailing out Credit Suisse and stabilizing the system – what you can't have is post hoc penalties over and above what was agreed at the time," Kelleher told a summit of global financial leaders last year, according to Bloomberg. "A lesson for global regulators must be: If somebody steps in to do the right thing, that is the right thing and it should be appropriately rewarded."
In a memo to staff last week, Ermotti, for his part, said: “I never expected the greatest obstacle to delivering a successful outcome would come from the same authorities who asked us to take on the Credit Suisse challenge."
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