TLDR:
- UBS stock plunged over 7% on Tuesday after new Swiss capital reform proposals rattled investors.
- Analysts slashed buyback forecasts, citing a possible $26 billion capital increase requirement.
- UBS called the proposed rules “extreme” and warned they could damage its global competitiveness.
- Swiss political divisions and potential public votes may delay or reshape the reforms for years.
UBS shares continued their downward spiral as investor anxiety over Switzerland’s proposed banking reforms intensified. On Monday, June 9, UBS stock closed at $32.93, down $0.69 or 2.05%, extending losses that began after Swiss authorities unveiled tough new capital requirements for the country’s largest bank.
The pain deepened in premarket trading on Tuesday, June 10, with UBS shares falling a further $1.13 or 3.43%, bringing the premarket price to $31.81. The sustained selloff reflects growing investor concerns that the proposed regulations which could require UBS to raise up to $26 billion in additional capital will weigh heavily on future shareholder returns and buybacks.
At the heart of the market’s concern is a proposed capital increase of up to $26 billion for UBS, intended to reduce the risk of future systemic crises following its 2023 rescue of Credit Suisse.
Tightening rules spark market selloff
The proposed reforms, unveiled by the Swiss government last week, aim to force UBS to fully capitalise its international subsidiaries, up from the current 60% requirement. The move comes as part of broader measures to strengthen the resilience of the country’s financial sector and prevent another crisis like that of Credit Suisse. The bank has described the proposed changes as “extreme” and warned that the increased capital burden is not aligned with global standards. UBS has vowed to lobby for revisions as the proposals make their way through the lengthy Swiss legislative process.
While UBS reiterated its commitment to this year’s shareholder payouts, it signalled that future distributions remain uncertain. Investors are now waiting for a fresh update on the bank’s capital return plans for 2026, expected alongside its fourth-quarter results.
Buyback forecasts slashed amid uncertainty
Analysts at JPMorgan and Goldman Sachs quickly adjusted their outlooks in light of the proposals. JPMorgan’s Kian Abouhossein cut his forecast for UBS’s share buybacks to $3.5 billion for 2026, down from $6 billion, and slashed his 2027 projection in half to $4 billion. Goldman Sachs similarly revised its expectations, warning that the capital hit could reduce flexibility unless UBS finds ways to offset the burden.
Although UBS shares had rallied on Friday following the announcement, some analysts now believe that initial optimism was based on an assumption that parliament might dilute the measures. However, recent statements from Swiss political parties suggest a challenging road ahead for UBS’s lobbying campaign. Pro-business factions appear cautiously supportive of the reforms, while left-leaning parties argue the measures don’t go far enough.
Political divisions may prolong reform process
The proposed rules are not expected to become law until at least 2028, with a grace period of six to eight years granted for implementation. Yet, political hurdles remain. Switzerland’s unique democratic system allows for referendums on major laws, meaning the reforms could face public challenge and potential delays until 2029 or beyond.
For UBS, the uncertainty surrounding its capital obligations has become a persistent headwind. Executives at the bank warned staff in a memo that the fight over these reforms was just beginning, and that the outcome would shape the institution’s direction for years to come. Investors, meanwhile, are left weighing the potential drag on shareholder returns against the bank’s still-strong valuation.
That said, the long-term impact of the capital overhaul on UBS’s international competitiveness is now a central question. Critics argue that requiring full capitalisation of foreign units could stifle growth and increase costs, potentially putting UBS at a disadvantage relative to global peers.
