(Bloomberg) -- UBS Group AG shares slumped on Tuesday, signaling that uncertainty over an upcoming government decision on capital requirements is overshadowing the bank’s progress in integrating Credit Suisse.
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The Zurich-based bank said it aims to buy back up to $3 billion of its own shares this year, and posted $770 million in net profit, aided by a big beat at the investment bank. Shares nevertheless dropped more than 6%, leading declines among European banks.
The global wealth manager is on track to complete the integration of Credit Suisse by next year and return payout plans to pre-acquisition levels. That said, analysts are focused on a potential $25 billion hike in capital requirements as a result of Switzerland’s reform of Too-Big-to-Fail rules, with Ermotti warning against an “overreaction” that would hurt competitiveness.
“The key question in investor minds” is if UBS will be able to siphon off capital it currently holds at other entities to cover the expected shortfall from the new regulation, Kian Abouhossein at JPMorgan Chase & Co. wrote in a note. A “repatriation” of $13 billion in capital disclosed by UBS for the fourth quarter hasn’t resolved the issue, he said.
UBS said that it plans to repurchase $1 billion worth of its own shares in the first half of this year, and an additional $2 billion in the second. That’s an increase over 2024 and in line with expectations, though the plans are subject to the upcoming regulation. The bank proposed a dividend of 90 cents per share, up from the previous year and plans to boost that by 10% this year.
Ermotti said he expects to have more clarity on the regulatory issues by May, by when the government should have formulated the new capital ordinance. “We believe that any significant change is unjustified,” Ermotti said on a call with analysts.
The Swiss government is considering making UBS maintain significantly more capital against its foreign units, a reform seen necessary in the wake of the collapse of Credit Suisse in 2023. UBS is pushing strongly against the suggestion, made by the regulator Finma, that the units should be 100% backed at the parent bank.
The quarter’s performance was dented by lower-than-expected client inflows at the key wealth management unit, and a deterioration in the cost-to-income ratio, a measure of profitability. That increased to 89% from 83% in the previous quarter.