Böni, Pascal; Zimmermann, Heinz (2026). The effective cost of capital buffers for UBS: a reappraisal based on empirical research.
Published in Financial Markets and Portfolio Management

Abstract
This paper critically examines UBS’s public pushback against higher capital requirements proposed in the aftermath of the 2023 Credit Suisse rescue. We challenge UBS’s claim that additional equity capital would substantially increase its cost of capital and impair firm value. Drawing on foundational corporate finance principles and recent empirical evidence, we demonstrate that higher equity buffers may reduce default risk and lower the bank’s cost of equity (CoE) and cost of debt (CoD). Increasing UBS’s capital buffers likely leads to lower funding costs and, in realistic scenarios, may affect its weighted average cost of capital (WACC) only marginally and by less than one basis point. Considering both effects, we estimate an almost complete M-M offset. Using UBS-specific data and a two-stage Gordon Growth model (GGM), we show that the valuation impact of increased capital buffers is economically negligible or even positive. Stronger capital buffers are unlikely to impair firm value and may enhance UBS’s long-term financial stability. Our findings support capital strengthening as a value-neutral or value-enhancing regulatory measure, providing evidence for calibrating capital buffer policies at systemically important banks.

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