UBS Shares Surge as Lawmakers Push for Weaker Capital Rules

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00:00And UBS shares are hitting a 17-year high after a group of influential Swiss lawmakers proposed

00:06watering down the capital requirements for the bank. The proposal would allow UBS to use junior

00:12debt, so-called 81 bonds, instead of equity to meet the capital requirements. And to talk about

00:17this, I want to bring in our chief Wall Street correspondent, Sridhar Nadarajan, joining me over

00:22here at the desk. Sridhar, this is an important story on so many levels, especially for our

00:27viewers and clients. But first of all, it means UBS probably won't move to New York, right?

00:34So the lesson from that is perhaps playing hardball works. And we should remind our listeners and

00:40viewers as to why we're even talking about UBS in New York. Not that it has ever been floated as a

00:45serious proposal, but in the last few weeks and months, there has been a lot of murmurs and rumors

00:49and talks about UBS, senior ranking UBS executives talking to U.S. officials, potentially relocating

00:56their headquarters out of Switzerland, which would be a big hit for Switzerland because UBS is the

01:01last remaining globally significant bank in the country, a country that is built on its banking

01:06system. What we have today is a group of influential Swiss lawmakers trying to find a compromise.

01:13And, you know, the details, there are some details here, but the details at this stage truly are not

01:17relevant because these will still be debated a year, year and a half down the line. We're talking about

01:21debates in 2027. But the idea is to make sure that they get to the negotiating table because up

01:27until now, the Swiss government was taking a very hard line stance, which would have meant that UBS

01:32would have had to set aside $26 billion in additional capital to meet their demands for a

01:39safer banking system. And UBS had been saying that would simply not be acceptable because it would

01:45make them uncompetitive. By the way, UBS shares apparently rise to a 17 year high and they have

01:51returned. Well, they've tripled in the past five years, but they're not doing as well as Goldman Sachs

01:58over that period, not doing as well as Deutsche Bank over that period, not doing as well as HSBC. And I

02:03haven't even looked at the Spanish banks, which are killing it. What's going on with this insane bank

02:08rally like all across the globe? Well, you know what's happened this year is we've finally seen a big return

02:14in dealmaking activity. You've seen that even as this has happened and people are worried about

02:19where the economy is headed, could there be a turn in the economy? When you look at the actual

02:23underlying numbers right now, the biggest banks are not that concerned. They're talking about a

02:28resilient economy. Their consumer banking operations are doing fine. And when you talk about the investment

02:32banking side of things, when you have so many deals in the pipelines, major deals, there is a flow

02:36through effect into other parts of that investment banking business. It's not just fees from advising on

02:42the biggest deal. It's raising debts, it's issuing equity. And there is also obvious trading activity

02:48that you will get from all of this business that the investment bankers are bringing in. So right now,

02:53it is a good time to be a major bank that is globally significant. Especially in Spain. I just

02:59looked up Santander. In the same period, over five years, they've returned, you know, with reinvested

03:05dividends, 353%. Is there a bubble in bank stocks? Are we worried about the wrong bubble here?

03:13Wow, we're now trying to find bubbles everywhere. Look, when you think about what has happened in some

03:17of the more exuberant parts of the market, it is very hard to look at the banking sector and talk

03:22about bubbles. And let's bring back the conversation to why we're even talking about the banks today.

03:26It's the strict capital demands. And there is the sense that in the last 15 years,

03:30regulators have acted in a way that has made the banking system safer. And that's why in the last

03:36year or two, more of the conversation is about what is happening in the non-banking system. And

03:41are there enough eyes on it? And are there enough guardrails placed out there? So not saying that

03:47nothing could possibly go wrong with banks. But on the surface, there's no obvious sign that banks

03:51are in some sort of bubble territory.

03:54I just put a smattering of the big ones here. And you can see JP Morgan is the worst performer

03:59among all of these big banks. If you can decipher the tickers, those are UBS, JP Morgan, Goldman Sachs,

04:06Deutsche Bank, HSBC, and Santander. Sri, great talking to you.

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