The Swiss Federal Council has published its final Capital Adequacy Ordinance (CAO) specifying the regulatory capital treatment of select assets for banks headquartered in Switzerland.

As well as publishing the final CAO, the Federal Council also submitted to parliament its final proposal for amendments to the Banking Act that governs the capital treatment of foreign participations of systemically important banks. This proposal will now be deliberated by parliament in the normal course of business.

UBS continues to strongly disagree with the proposed package, which is extreme, lacks international alignment and disregards concerns expressed by the majority of respondents to the government’s consultations. If adopted, the proposed measures would have far-reaching consequences for the Swiss economy.

The materials published by the Swiss government today contain assertions that we believe to be misleading. Considering UBS has just received this information, it is in the process of thoroughly evaluating all documents and statements made during the Federal Council’s press conference. UBS will provide additional comments at the latest with its results for the first quarter of 2026, which will be published on 29 April 2026.

Capital impact from the changes to the Capital Adequacy Ordinance

Under the new ordinance, UBS’s capitalized software will be subject to an amortization schedule of no more than three years for capital purposes, regardless of economic useful life. In addition, prudential valuation adjustments will be revised, resulting in higher capital deductions for assets and liabilities that are subject to valuation uncertainty. The treatment of deferred tax assets arising from temporary differences remains unchanged and aligned with international regulation.

Regarding Additional Tier 1 (AT1) capital instruments, the Federal Council has decided not to proceed with the proposed adjustments for the time being, as it considers it more appropriate to await the international developments that are currently under way in this area.

Based on today’s publication, the changes to prudential valuation adjustments will become effective on 1 January 2027, while the changes to the capital treatment of capitalized software must be implemented by 1 January 2029. The amendments announced today, once fully implemented, are expected to eliminate approximately USD 4bn of net CET1 capital at the Group (consolidated) level. This would reduce the CET1 capital ratio at UBS Group by around 0.8 percentage points. At UBS AG standalone, the net CET1 capital impact is estimated at approximately USD 2bn.

Estimated incremental capital from proposed changes to the regulatory treatment of foreign participations

Under the proposal relating to foreign participations that will now proceed through the parliamentary process, investments in foreign participations would be fully deducted from UBS AG’s standalone CET1 capital. The proposal provides that the amendments would be phased in over seven years, assuming no delays during the parliamentary deliberations, starting with a 65% deduction requirement in the first year and increasing to 100% by 5-percentage-point increments each year.

The full deduction of investments in foreign subsidiaries would require UBS AG to hold additional CET1 capital of around USD 20bn.

Estimated overall capital impact of Credit Suisse acquisition

When including the USD 2bn net CET1 impact from the amendments to the CAO, the total incremental CET1 capital of around USD 22bn required at UBS AG would result in a de facto minimum CET1 capital ratio at the UBS Group AG (consolidated) level of around 18.4%.

At Group level, including the derecognition of around USD 4bn of net CET1 capital from the CAO measures related to capitalized software and prudential valuation adjustments, the CET1 capital ratio would decrease the aforementioned 18.4% to around 17.6%. This would contribute to a further underrepresentation of UBS’s capital strength compared to its peers.

These estimates have been calculated based on our balance sheet at 31 December 2025, assuming that all capital measures are adopted as currently proposed and using an assumed CET1 capital ratio of 12.5% for UBS AG and 14.0% for UBS Group as a starting point, as previously disclosed.

The Federal Council’s stated pro-forma CET1 capital ratio for UBS of 15.5% and the accompanying peer comparison are misleading, requiring further clarification.

The incremental capital of USD 22bn mentioned above would be in addition to the previously communicated incremental capital of around USD 15bn that UBS must hold as a result of the acquisition of Credit Suisse to meet existing regulations. This includes around USD 9bn to remove the regulatory concessions granted to Credit Suisse and around USD 6bn to meet the current progressive requirements due to the increased size and higher market share of the combined business.

As a result, UBS would be required to hold around USD 37bn in additional CET1 capital in total, with an annual capital cost of around USD 3bn.

Impact assessment for the broader Swiss economy

The Federal Council’s mandatory regulatory impact assessment for the proposed banking regulation remains insufficient in both scope and methodology to serve as a sound basis for evaluating the potentially far-reaching consequences for the Swiss economy as a whole.

A recent study by independent Swiss economic research institute BAK Economics used its established macroeconomic model to quantify the significant and permanent effects of the proposed full deduction of foreign participations from CET1 capital. According to the study, the impact on borrowing costs and credit supply from this specific regulatory change could result in cumulative losses in Switzerland’s gross domestic product of up to CHF 34 billion over a ten-year period, alongside lasting declines in investment, employment, and tax revenues.

Targets and capital returns

As none of the regulatory changes are expected to become effective before 2027, UBS Group AG maintains its target of achieving an underlying return on CET1 capital of around 15% and an underlying cost/income ratio of <70% by the end of 2026 (both on an exit rate basis).

UBS remains committed to its planned 2026 capital returns.

UBS remains committed to its business model and to contributing to fact-based deliberations

UBS remains committed to its diversified business model and unique regional footprint, as the largest truly global wealth manager and leading bank in Switzerland, with targeted, competitive investment bank and asset management capabilities.

UBS already operates with strong capital buffers, and Switzerland’s existing capital framework is among the most stringent globally. The CAO and the proposed capital treatment of foreign participations would further increase these requirements. UBS looks to the parliamentary deliberation process in connection with the proposed treatment of foreign participations to take account of the concerns raised by many stakeholders during the democratic consultation process. In particular, stakeholders have highlighted the material economic harm to households and corporates in Switzerland and the importance of maintaining a strong, internationally competitive financial center. UBS will continue to contribute facts and analysis that support informed decision-making.

In parallel, UBS will continue to evaluate appropriate measures to protect the interest of its shareholders while mitigating the impact, if possible, on its clients and employees.

Source: UBS