London to be new capital of Swiss banking?

The investment banking arm of UBS is reportedly planning to up sticks and move to the UK - to escape heavy regulation by the Swiss authorities...

by Emma Haslett
Last Updated: 15 Sep 2011
Bankers may have made something of a hobby of insisting that if the Government dares to impose on them any further, they’ll be on the next flight bound for foreign climes – but that argument could be about to become something of a non sequitur. According to reports (alright, speculation), UBS, one of Switzerland’s largest banks, is thinking of moving its investment banking operations over to London – in order to avoid heavy regulation by the Swiss government…

UBS has, naturally, already denied it as ‘pure speculation’, but according to a report in the Wall Street Journal, the bank is planning to move to either London, New York or Singapore. That’s because it wants to avoid strict new rules outlined by the Swiss government, stipulating that to protect taxpayers from having to shell out for future bailouts, banks must hold capital equivalent to at least 19% of lending. Which, despite its reputation for fiscal leniency, is one of the highest capital requirements in the world. Not for nothing are Swiss bankers called ‘prudent’.

UBS is known for being a particularly risk-loving organisation, so it wouldn’t be much of a surprise if the Swiss government was keen to have its investment banking operation, arguably the riskiest part of the company, outside its jurisdiction. Having become one of the keenest buyers of mortgage-backed securities (based on sub-prime mortgages) in the mid-2000s, it required a $60bn bailout in October 2008, the largest of any European bank.

In many ways, to the Swiss government, it’s win-win: the bank does most of its investment banking outside Switzerland, concentrating on retail banking and wealth management in its native country. So it’s not like it will be a huge loss to the nation.

But why London, given that its regulations and capital requirements are expected to tighten, too? We don’t yet know which of the banking commission’s recommendations are going to be implemented – or, indeed, how – but chances are, they’ll still be more lenient than Switzerland’s. Although we’re not sure what UBS’ 15,000 investment bankers will make of the UK’s 50% top-level rate of income tax…

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