Judging UBS by its stock price is indeed correct. Last week, it surged nearly ten percent at times after announcing surprisingly strong figures for the first quarter of 2024. Moreover, the largest Swiss bank massively increased its corporate value due to the highly efficient integration of Credit Suisse (CS).

Thus far, it has fulfilled its two most important objectives: proving itself as the «new» UBS and continuing its business operations successfully. However, recent statements from UBS CEO Sergio Ermotti, Finance Minister Karin Keller-Sutter, financial analysts, and employees, now suggest that different times could be on the horizon, potentially signaling the prolonged honeymoon of UBS and CS.

Ermotti's Discontent

Several factors reinforce this impression: Similar to other banks, UBS recently enjoyed the benefits of rising interest rates, which provided handsome additional revenues, as reported by finews.ch. However, due to the recent interest rate cuts (by the Swiss National Bank last March), these revenues might now be more subdued, making it harder to «absorb» the ongoing integration costs for CS.

Furthermore, it is still open to how much capital backing the Federal Council will require from Switzerland's largest bank. Given this uncertainty, it's understandable that Ermotti has expressed some discontent — especially considering UBS's economic importance to our country.

Critical Requirement

Yet this requirement holds significant importance as it will determine UBS's agility compared to international competitors, a factor crucial for the development of the UBS stock price. Previously, market participants assumed that Swiss politicians would make progress in fixing defects and weaknesses in regulation and supervision.

However, this assumption is increasingly being dispelled. Instead, discussions are emerging about whether CS failed due to a lack of equity and whether UBS has gained too much market power, especially after the state forced it to take over its competitor.

Corporate Headquarters Abroad?

The issue at hand is somewhat mundane: As a global leader in wealth management, UBS must be able to operate in a regulatory and supervisory environment that is equivalent internationally, without being restricted by so-called «Swiss-finish solutions.»

In other words: either Switzerland reforms its regulatory and supervisory frameworks to match other global financial centers like New York, London, or Frankfurt, or UBS must move its corporate headquarters abroad to keep pace with the competition.

Nobody's Waiting

This is particularly true with a view to the USA, still the largest market for wealth management. If UBS wants to catch up with the big players like J.P. Morgan and Morgan Stanley, it needs to be competitive and free to expand its presence there, offer appropriate financial products and services, and be as close to wealthy clients as its competitors already are. If it succeeds, the UBS stock will continue to rise.

However, two facts should be considered: In the USA, no one was waiting for UBS, and so far, no European bank has managed to make a big breakthrough in this market. Nevertheless, it would be a mistake to not exploit this business potential — especially from a shareholder's perspective.