Morgan Stanley Downgrades UBS on Capital Concerns, Cuts Price Target

UBS Group AG (SIX:UBSG) was downgraded to “underweight” by Morgan Stanley, which cited capital uncertainty and weaker earnings performance as key reasons for the shift. The brokerage also lowered its price target to CHF 26 from CHF 28, alongside a 5% cut in 2025-2028 EPS forecasts.

Why the Downgrade?

The move comes amid proposed Swiss regulatory capital reforms, which could compel UBS to raise an additional $24 billion in capital at the parent level. This would push the Common Equity Tier 1 (CET1) ratio requirement to as high as 19%—unless UBS executes mitigating actions worth up to 250 basis points.

Morgan Stanley revised its valuation framework from a 16% to 16.5% CET1 assumption and also reduced buyback forecasts to $3 billion annually from 2026, significantly below consensus.

UBS Lags Peers on Yield and Returns

• UBS now offers an expected total yield of 6%, well below the 9% average for European peers.

• The stock trades at 1.15x 2026 projected tangible book value and 8.5x 2027 EPS, which are seen as low multiples but with limited re-rating potential due to capital overhang.

Track valuation metrics and yield comparisons using the Key Metrics (TTM) API.

Underperformance Continues

UBS has dropped 38% YTD, significantly underperforming the STOXX Europe 600 Banks Index (SX7P). While it has fared slightly better against U.S. peers—outperforming the KBW Bank Index by 5%—the capital cloud has weighed heavily on investor sentiment.

Access UBS's complete financial profile and earnings trend using the Earnings Historical API.

Outlook

Morgan Stanley's downgrade reflects a broader caution toward banks facing tightening regulatory pressure and limited capital flexibility. For UBS, until regulatory clarity emerges and earnings stabilize, investor enthusiasm is likely to remain muted.