Karin Keller-Sutter and UBS: The story of alienation

It wasn't a good day for UBS. Finance Minister Karin Keller-Sutter and the Federal Council decided on Friday exactly what the bank has been warning about for a year: significantly stricter capital requirements for foreign subsidiaries. "This measure could result in UBS needing up to $23 billion in additional capital," Keller-Sutter said at a press conference in Bern.

The months of lobbying by the bank's top management, led by CEO Sergio Ermotti and Chairman of the Board of Directors Colm Kelleher, have thus come to nothing. Even the threat, voiced more or less loudly, that UBS might relocate its headquarters abroad failed to materialize. Keller-Sutter appeared extremely unimpressed at the press conference in Bern. As a committed liberal, she said it bothers her when banks take risks without assuming responsibility.

"It is not the Federal Council's job to decide where UBS has its headquarters," said the Finance Minister. She hopes UBS will remain in Switzerland. It is important to have a large bank in the country. The major bank is capable of meeting the stricter capital requirements. How it wants to do this is a management decision.

Keller-Sutter's appearance made one thing clear: Even though UBS played a key role in rescuing Credit Suisse in March 2023, the finance minister is not prepared to give the major bank political backing.

Instead, it shifts responsibility for the future capitalization of the major bank to Parliament – ​​and exposes the last remaining major Swiss bank to years of uncertainty.

Friday's Federal Council decision not only marks a milestone in banking regulation, but also completes a development that began in April 2024: the estrangement between the liberal Federal Councillor and UBS.

As recently as March 2023, the mood between the major bank and the Federal Councilor was positive. In the dramatic days surrounding the demise of Credit Suisse, the Finance Minister demonstratively backed UBS. In an interview with the NZZ newspaper, she stated: "It's clear that this situation hasn't strengthened confidence in the economy. But: "A market participant – UBS – has certainly taken responsibility here."

When representatives of her own party publicly called for CS Switzerland to be subsequently separated from UBS, she defended the deal. She described attempts to disrupt the terms of the takeover negotiated with UBS as "highly risky."

The major bank was seen as a savior in times of need back then, and it still sees itself in this role today. Only in Bern has the perception fundamentally changed.

The first discordant notes emerged in the summer of 2023, when UBS terminated the loss guarantees granted as part of the emergency takeover. Keller-Sutter expressed relief at the return of the state guarantees, but at the same time warned Paradeplatz: Even in the private sector, one relies on the public being able to understand what a company's top management is doing. She assumed that UBS's decision-makers weren't living under the moon.

This could have been a warning signal for UBS's management, led by Sergio Ermotti, but they believed they were safe and assumed that, as the savior in the CS case, they had little to fear from a regulatory perspective. They were mistaken.

When Karin Keller-Sutter presented a package of measures for a reform of banking regulations in April 2024, the bank's top management reacted with surprise. The proposed tightening of capital rules was nothing more than a tranquilizer for the people , said Colm Kelleher, Chairman of the Board of Directors of UBS, in an interview. These were harsh words. At the same time, criticism came from the political left, who felt Keller-Sutter's plans didn't go far enough and were too bank-friendly.

Parliamentarians today say Keller-Sutter was struck by Kelleher's reaction. She believed she had presented a balanced compromise with the "Too Big to Fail" report. She was even recognized abroad: The British Financial Times included her in its list of the 25 most influential women of 2023.

But domestically, UBS brought out the big guns: with a massive lobbying campaign , it tried to put pressure on Keller-Sutter and politicians.

According to observers, UBS's campaign generated little goodwill – and contributed to widening the rift between itself and Keller-Sutter. The bank's lobbying, which became increasingly aggressive over time, wasn't just aimed at Keller-Sutter. Federal parliamentarians, academics, and media representatives all suffered. The major bank's attempts to undermine regulatory proposals have angered the finance minister, as she herself has confirmed.

"UBS's lobbying is unmistakable and unmistakable. It's clearly resonating in various places," Keller-Sutter told Swiss television in March 2025. And she made it clear that she intends to stick to her line: "The Federal Council cannot be impressed by lobbying, but must also represent the interests of taxpayers," she said.

The bank's leadership was annoyed that it was not being listened to enough in Bern and that it had virtually no access to the federal government. There were discussions between Keller-Sutter and UBS President Kelleher, including one at the WEF this January, and further meetings with the bank's top management in April and May. But their concerns were not heard, as is now apparent.

According to a conservative politician, UBS not only failed to make much of an impact on its content, but the bankers entrusted with representing its interests lacked the necessary stature to make their voices heard in Bern. In general, the bank's top management has surprisingly little understanding of how the political apparatus works.

Keller-Sutter is quite different. She masters the rules of power like no other, and she also knows that UBS is isolated in Bern. So far, the Federal Councilor has had little to fear from political resistance to her regulatory plans.

Especially since UBS can't even count on the unconditional support of its own industry. In Bern, the banks don't speak with one voice. UBS, the other major banks, and cantonal and regional banks all pursue different interests.

While malice isn't appropriate, says an industry representative, UBS can't expect sympathy or solidarity from the other banks. UBS is where it is voluntarily: It agreed to the CS takeover of its own free will, it could dictate the terms, and, above all, did so out of self-interest. However, UBS underestimated how few political allies it had in Bern – and that Keller-Sutter was no longer one of them soon after the emergency merger.

A financial expert with good connections in Bern always considered UBS's desire for a rapid clarification of the capital issue to be illusory: This issue had to be resolved politically, and Keller-Sutter's approach was also correct from the point of view of democratic legitimacy.

In addition to the bank's assertive approach, the bank's compensation policy also contributed to the estrangement between UBS and Federal Councilor Keller-Sutter. Keller-Sutter was irritated by the CHF 14.4 million and CHF 14.9 million compensation the bank awarded Sergio Ermotti for the last two fiscal years.

And she made this clear publicly, too: In spring 2024, she said that the major bank was paying compensation that would exceed the imagination of any ordinary citizen. She disagreed with this development. "UBS is harming itself," she said in an interview with CH Media.

There's a world of difference between Bern's Bundesgasse and Paradeplatz. UBS Chairman Kelleher once again defended his CEO's compensation at this year's Annual General Meeting. Sergio Ermotti has arguably the most difficult job in the global financial industry, "and he's delivering," said the Irishman. And to this day, he continues to resist the Federal Council's call for more equity: "Additional capital is the wrong tool."

Following the announcement of the Federal Council's decision, Kelleher and Ermotti took a combative stance in an internal memo to employees. They called the capital measures "extreme, disproportionate, and not internationally coordinated." If fully implemented, they would undermine UBS's global competitiveness and harm the Swiss financial sector and ultimately the entire Swiss economy. "We will continue to defend the values ​​our company stands for and the benefits we offer to many people."