Merger talks with Morgan Stanley could dramatically raise UBS's risk profile

In the Swiss federal parliament, officials continue to examine how to shore up UBS's capital base, considering options that range from moving the bank abroad to a full merger with an overseas competitor. Morgan Stanley emerges as the sole foreign institution capable of absorbing UBS's size, which could produce a powerhouse that leads both investment banking and global wealth-management markets. Yet, such a combination would fundamentally alter UBS's risk composition.

Analyst Carlo Lombardini, after reviewing the banks' annual reports, argues that the deal would dramatically raise UBS's risk profile, given Morgan Stanley's heavier reliance on investment-banking activities, which carry higher risk than UBS's core wealth-management and retail banking businesses. The proposal therefore raises concerns about financial stability and regulatory scrutiny.