UBS exploring options abroad in case Swiss rules prove intolerable, sources say

By Oliver Hirt

ZURICH, Oct 15 (Reuters) - UBS is working on possible scenarios including shifting its headquarters, or a merger with another bank, if Switzerland introduces new banking rules it deems excessively strict, according to three people familiar with the matter.

Switzerland is crafting new regulation for banks in response to the 2023 collapse of Credit Suisse, and a lower house committee will later this month begin debating rules passed in September by the upper house that UBS hinted were intolerable.

A group inside the bank is considering the various options, which include drawing up a list of smaller banks in the United States that UBS could potentially buy, and the prospect of the bank being taken over itself, according to the sources.

There are no active talks underway, the sources said.

UBS, which is closely following how events play out in parliament, said: "We don't comment on speculation or views expressed on such matters."

Earlier this year, UBS obtained a US banking licence and is eager to expand its business in the United States. But the rules drafted by the Swiss government are partly designed to reduce the risk taxpayers could face if the bank suffered losses in the United States.

People familiar with the bank's thinking say US investment bank Morgan Stanley MS.N would be the best theoretical match for UBS. The Swiss bank has repeatedly stated that it is not planning to move and sees great value in its Swiss base.

There are notable ties between the leadership of the two banks, as UBS Chairman Colm Kelleher spent many years at Morgan Stanley, eventually rising to one of the top jobs there.

Kelleher said last month that UBS might need to consider its future in Switzerland if the incoming rules were too harsh.

Under its overhaul, the Swiss government wants ⁠UBS to back its foreign units with 100% Common Equity Tier 1 capital, which could tie up in excess of $20 billion. UBS views this as excessive and harmful to its international competitiveness.

The upper house last month trimmed that requirement to 90% CET1 capital, but UBS also regards that as excessively high.

At present, the bank needs to 60% capitalise its foreign units but that can be partly met with cheaper capital.

Since last year, speculation has swirled around the possibility that UBS could move its base abroad to avoid the tougher regulation, and people familiar with the bank's thinking say it has a duty to shareholders to consider all options.

Swiss Finance Minister Karin Keller-Sutter, who has led the charge to introduce tougher banking rules, said last month she felt it was unlikely that UBS would leave its homeland, arguing this would be costly and legally complicated.