UBS Nears Finish Line on Credit Suisse IT Cleanup as Bern Weighs a $33 Billion Capital Tab

UBS says Credit Suisse integration is near completion, but a Swiss upper-house vote on 90% hard core capital for foreign units clouds buybacks.

UBS has quietly cleared most of the technical wreckage left behind by its rescue of Credit Suisse, even as a far messier political fight over capital rules gathers force in Bern. Speaking Tuesday at a Bank of America industry conference, chief executive Sergio Ermotti said the operational integration of the acquired rival is now close to completion.

More than 90% of the roughly 3,000 IT applications inherited from Credit Suisse have been taken out of service, according to media reports, with about three-quarters of those systems fully decommissioned.

A Split Picture in Day-to-Day Business

The operating backdrop for the third quarter is less tidy. Ermotti told the conference he expects client transaction activity in wealth management to come in ahead of the year-earlier level, while cautioning against reading too much into the scale of that recovery. In investment banking, management is bracing for headwinds, projecting shrinking fee pools in the advisory business.

Investors took the mixed signals in stride. UBS shares closed Thursday at EUR 42.64, a gain of 1.5% on the day, bringing their advance since the start of the year to 7.2%. The stock still sits 38% above its 52-week low.

Upper House Draws a Hard Line

The regulatory question looming over the bank sharpened Wednesday, when Switzerland's Council of States voted 29 to 16 in favor of requiring foreign subsidiaries of UBS to be backed by 90% hard core capital (CET1). The broader banking law package cleared the smaller parliamentary chamber by 33 votes to 10.

The outcome sits between two competing positions. The government of Finance Minister Karin Keller-Sutter had originally pushed for full 100% coverage, while UBS itself had lobbied for a compromise split evenly between 50% CET1 and 50% AT1 capital. Ermotti has publicly called the 90% threshold excessive, and after the vote the bank complained that the concerns of business associations, unions and most cantons had been ignored in the upper house.

The stakes are considerable. Under current rules, foreign units face a requirement of just 60%, and that can be met with instruments other than CET1. UBS calculates that the 90% ratio alone would tie up roughly USD 16 billion in additional hard core capital at UBS AG. Add USD 2 billion from other measures and USD 15 billion in existing requirements dating to the Credit Suisse takeover, and the total additional capital need comes to about USD 33 billion.

Should the tightening become law, management puts the recurring burden at up to USD 2.5 billion a year. For shareholders, that figure is the crux: every dollar locked up as a buffer curbs room for buybacks and dividend increases. Ermotti framed the broader debate in generational terms on Tuesday, warning that the political discussion over stricter equity requirements will shape the Swiss financial center for decades, and arguing that the country's largest bank is a strategic asset rather than chiefly a concentration risk. Management has put the potential annual cost to shareholders at CHF 2 billion to 3 billion if the proposed rules take effect.

Public Opinion Tilts Against the Bank

Political resistance is not the only obstacle. A survey published in Switzerland in June found that 79% of the population favors stricter capital rules, even if that means lower dividends or slower growth for the bank. Only 9% opposed the idea at the time. Confidence in the sector has also eroded, with an industry association study showing trust falling from 75% in 2021 to 53% last year.

The legislation now moves to the National Council, where a final decision is not expected before the end of the year. That chamber offers the clearest hope of relief: if business representatives succeed in winning half-credit for AT1 capital, the extra capital requirement would be halved at a stroke, leaving earnings power largely intact and limiting the damage to the group's global competitiveness. Until that vote, the shares remain caught in a political waiting game in which regulatory uncertainty overshadows fundamental metrics.

A Warning From the Top

The debate has already drawn in the highest levels of the company. On September 17, chairman Colm Kelleher cautioned that the bank would have to reconsider its future in Switzerland if new rules permanently impair its international competitiveness. A scenario in which the National Council sticks to the upper house's line — or moves closer to Keller-Sutter's 100% demand — would weigh heavily on the profitability of overseas operations, particularly in the US and Asia. Billions reserved as low-yielding buffers would inevitably drag down the group's return on equity, spelling a prolonged dry spell for shareholder payouts.