UBS will not leave Switzerland

After the demise of Credit Suisse, the swiss parliament and authorities have been discussing tougher capital rules for the four swiss systemic banks. The new rules seem mostly directed against UBS.

UBS has been vocal in saying that it is unhappy with the new capital regulations which it may be subject to. We agree with UBS that the issue that must be addressed is liquidity and not capital ratios. Indeed, Credit Suisse become nonviable, and had to be saved, due to liquidity problems (a run on the bank) and not to insufficient capital ratios.

That being said, the regulators are focusing on stricter capital requirements and there has been speculation on UBS leaving Switzerland.

This appears highly unlikely when one tries to answer the following question : in what jurisdiction could UBS go and develop its businesses? Let's discuss the alternatives.

United States : this would subject UBS to less regulations but to higher taxes than in Switzerland. It would also be detrimental, due to geopolitical issues, to the business in Asia and Europe. Many international private banking clients may not like the idea of being in a US bank, subject to the all the potential issues of the US, including potential taxes in the case of inheritance.

United Kingdom : post Brexit, the United Kingdom has been losing its status as a financial capital. The new tax regulations are leading individuals to leave the country and the corporate taxes for UBS would be higher than those In Switzerland.

France (Paris), Germany (Frankfurt), Italy (Milan) : all these european capitals have seen a increase in activity after the Brexit. However all these countries have high taxes for companies. The sovereign risk of these countries could also become an issue for clients.

Hong-Kong : UBS could not relocate its headquarters to Hong-Kong since this would lead it to be a chinese bank with the obvious consequences.

Singapore : as Singapore has become increasingly closer to China, it is not possible to think that UBS would relocate here.

In conclusion, for UBS, there is simply no better place for business than Switzerland. Not only are the taxes lower, but there are way less geopolitical issues that exist by being in Switzerland. Lastly, the financial health of banks are closely tied to the country in which they are since a large amount of their liquidity and equity is invested in government bonds. Italian banks have a large exposure to bonds of issued by the italian government. American banks have a large exposure to US treasuries. UK banks have a large exposure to UK bonds. Swiss banks have a large exposure to swiss bonds. For wealthy investors, the credit risk of Switzerland is by far much better than the one of the United States, the UK, or any european or Asian country....