TheChek News Flow

Inside the Ukrainian Drone Operation That Devastated Russia’s Bomber Fleet

WSJ analysis reveals how Ukraine used homegrown tech and old-school spycraft in the attack

KYIV, Ukraine—Ukraine’s spectacular drone attack on Russia’s strategic bomber fleet on Sunday began with a daunting request from Ukraine’s president to his spy chief in late fall 2023.

The Russian Air Force was pummeling Ukraine’s power stations and cities with missiles, overwhelming meager air defenses, and Volodymyr Zelensky wanted to know: How can we fight back?

Lt. Gen. Vasyl Maliuk, a 42-year-old career security officer with broad shoulders and a stern mien, has earned a reputation for innovative operations with explosive naval and aerial drones that forced Russia to withdraw much of its Black Sea Fleet from its base in occupied Crimea and damaged dozens of oil plants and military-production facilities deep inside Russia.

But the task was formidable. The strategic bombers that launched many of Russia’s most powerful missiles operate from beyond the range of Ukraine’s air-defense systems, and were based at airfields across the country as much as 3,000 miles from Ukraine. Ukraine’s SBU security service, which Maliuk heads, has deployed long-range aerial drones effectively, but they are vulnerable to Russian air defenses, including missile interceptors and jammers.

What Maliuk and his team came up with shocked the world Sunday with its audacity. The agency smuggled Ukrainian drone parts into Russia and assembled them at a secret location. SBU operatives inside Russia used unwitting truck drivers to deliver a modern version of the Trojan horse by concealing the drones in the roofs of wooden containers. On Sunday, the roofs—activated remotely—slid open on trucks close to the Russian air bases, releasing dozens of drones and adding a dash of Transformers to old-school spycraft.

More than 100 quadcopters—small drones with four rotors—emerged and zipped toward their targets, some descending through smoke billowing from already-damaged aircraft.

A Wall Street Journal analysis of official Ukrainian statements along with satellite images, accounts by people familiar with the operation, and photographs and videos posted on social media shows how a meticulously planned operation that combined homegrown technology with the classic art of deception unfolded.

Ukraine said that it damaged 41 warplanes valued at $7 billion at four bases using drones that cost about $2,000 each. Publicly available videos and satellite imagery reviewed by the Journal showed 12 damaged planes across two air bases.

“The numbers the Ukrainians have been providing aren’t backed up yet by hard evidence,” said Sam Lair, a research associate at the James Martin Center for Nonproliferation Studies, a Monterey, Calif.-based think tank that studies weapons of mass destruction. Lair identified the damaged planes through satellite imagery and social media.

Still, he said, “it’s clear that this has dealt a very heavy blow to the Russian strategic bomber force, even if we aren’t seeing the numbers that the Ukrainians have claimed.”

Of the four air bases that the SBU said it targeted, satellite imagery indicates that three sustained damage, and only two show visible signs of damaged aircraft—the Belaya and Olenya air bases.

Satellite imagery from Monday shows that a third air base, Dyagilevo, sustained only a patch of burned grass, according to Lair.

Much of the damaged equipment is irreplaceable or hard to rebuild. A Ukrainian law-enforcement official said at least one of the targets damaged was a rare A-50 plane, which provides airborne early warning of potential threats and targets as well as command and control of the battlefield. Available satellite imagery doesn’t show any damaged A-50s.

Most of the planes hit were Tupolev Tu-95 bombers, a Soviet-era aircraft still crucial to Russia’s long-range missile campaigns. While the extent of the damage to Tu-95s remains unclear, in light of the aircraft’s age and scarcity of parts, even relatively minor damage could derail Russia’s air missions for months, Lair said.

Maliuk and his agency have plenty of experience striking prime targets, from the use of a truck bomb to damage the Kerch Bridge between mainland Russia and occupied Crimea to assassinations on Russian territory, including the killing of a Russian general with an exploding scooter as well as a bomb hidden in a statuette to kill a prominent war blogger.

Zelensky said that Ukrainian intelligence operatives in Russia had set up a base right under the noses of Russia’s Federal Security Service, the FSB. Russian law enforcement searched a concrete warehouse Sunday in Chelyabinsk, an industrial city in the Ural Mountains about 900 miles east of Moscow and a few miles from the local FSB headquarters, according to Russian media.

Russian state media named a Ukrainian DJ who had been living in Russia and recently relocated to the city last year as one of the people responsible for logistics behind the drone attack, purchasing the trucks that would carry the drones and coordinating the drivers. He didn’t respond to requests for comment.

Some of the materials the SBU used in the operation had to be smuggled across tightly controlled borders, including the parts that would eventually be assembled into the attack drones.

A Ukrainian law-enforcement official said the drones used were quadcopters called Osa, produced by the Ukrainian company First Contact. The craft, about the length of a man’s arm, are made in Ukraine, can carry a payload just over 7 pounds and travel at a maximum speed of just over 90 miles an hour, according to the manufacturer’s website.

Valeriy Borovyk, the founder of First Contact, declined to comment on whether the drones were used in the operation, but said they are manufactured for complex special operations.

Osa, Ukrainian for “wasp,” has several alternatives for how it can be controlled. One of them is the ability to connect to cellular networks, which Russia shuts down when it expects an incoming strike but which remain operational when there is an element of surprise, as there was with Sunday’s operation.

Borovyk said it was the SBU’s meticulous preparation ahead of the strike that would have allowed for drone operators to do their job effectively. He said the strike portion of the operation was the cherry on top.

“But this cake, they prepared it, cooked it, put it in a box, decorated it—to continue the metaphor—and all of this was done with great care and detail,” Borovyk said.

The truck drivers said to Russian authorities that they weren’t told about the contents of the containers and were instructed to stop at gas stations or roadside rest stops near the airports, according to Russian media.

New York pension scheme considers boost to overseas investments

Donald Trump’s erratic policies have prompted ‘gut check’ review of asset allocation, says investment chief

New York’s public pension scheme was weighing whether to boost its allocations to overseas markets as Donald Trump’s erratic policy measures upended the outlook for global markets. 

Steven Meier, chief investment officer for the New York City pension systems, which manage about $290bn of assets for the city’s municipal workers, told the Financial Times he was considering a “gut check” review of its asset allocation at the end of the year. 

“There’s been a lot of changes in policy in Washington the last few months. Those policy changes have raised the level of uncertainty and volatility in the marketplace,” Meier said, adding that the changes may affect the fund’s underlying assumptions concerning GDP growth, inflation, productivity, government spending and private capital flows.

The funds have 15 to 20 per cent invested in Europe and less than 5 per cent invested in Asia.

The New York City pensions investment chief said international diversification was a “benefit to a portfolio . . . particularly coming off of a time when the US has really outperformed and portfolios are so dominant in US dollar assets”.

He added that Europe’s plans to increase spending on defence “would probably combine to deliver a more vibrant economy in Europe which means more investment opportunity” and that he was “increasingly” looking at more opportunities in Asia because the funds’ holdings there were “so small”.  

However, he added that any asset allocation changes would be incremental and US markets would continue to dominate the portfolio. “As a US dollar investor with US dollar liabilities, we have a home bias that makes sense — these are the deepest and most liquid capital markets in the world,” Meier said.

The New York City pension systems, which are collectively the third-largest public pension plan in the US, last carried out a major asset allocation review in 2023, which was implemented last year. Such reviews are normally carried out every three to five years. 

“Enough has probably changed in terms of the outlook for the economy that we should probably think about a strategic asset allocation review at the end of the year,” Meier said, adding that he had not made any such changes yet because it was “still a little early” to digest the implications of Trump’s trade war.

Meier’s comments come after the US president has rocked markets in recent months by announcing a spate of tariffs, delays and partial climbdowns. In late May a court ruled he did not have the authority he relied on to impose most of the levies, a decision the White House has appealed. 

Trump’s “big, beautiful” tax bill along with a recent Moody’s downgrade of the US’s credit rating has also brought the sustainability of America’s debt levels under renewed scrutiny and put pressure on US government borrowing costs. 

“I do think that some of the announcements that have been made and the actions that have been taken are material . . . and this administration has a different communication style that lends itself to more uncertainty and more volatility that needs to be taken into consideration,” Meier said. 

He added that ultimately tariffs “will have the impact of increasing inflation at least for a period of time and will probably dampen growth”. 

At its last strategic asset allocation update, the funds increased their allocation to private markets following a change in New York state legislation that expanded their potential allocation to non-traditional assets, primarily alternative investments, from 25 per cent to 30 per cent. 

Ministers to hand more than £1bn to Lower Thames Crossing in spending deal

Taxpayer backing to be unveiled by Reeves will pave way for private fundraising

Ministers are set to allocate more than £1bn of public funding for the Lower Thames Crossing as part of next week’s spending review, according to government officials.

The sum, which is set to be lower than the £2bn project operators initially wanted, is needed to unlock private investment into the £10bn road tunnel that will link Kent and Essex.

National Highways, the government body behind the project, previously estimated that £1.9bn was required to secure £6.3bn of private capital, using a model favoured by the Treasury that would allow investors to recoup their money through driver tolls.

Chancellor Rachel Reeves would allocate taxpayer support for the project as part of the spending review, the people said.

Officials expect the crossing to be financed and run by private investors under the “regulatory asset based” or RAB model.

The model has been used by other big infrastructure projects such as the Thames Tideway sewage tunnel. National Highways previously said that this approach would cost about £200mn more than if the state funded the entirety of the project.

Construction on the 14-mile road and tunnel is expected to start as soon as the next 12 months, after no appeals were received ahead of a deadline to legally challenge the project’s planning consent.

The project is a test of the government’s ambitions to unblock major infrastructure work.

National Highways has spent more than £1.2bn on the crossing even before building work has started, while its planning document runs to more than 300,000 pages.

The funding for the Lower Thames Crossing will be part of a broader announcement by Reeves of up to £113bn in capital and infrastructure projects, as she seeks to convince the public that her government has a plan to boost economic growth and improve public services.

Reeves changed the government’s fiscal rules at her October Budget to increase the amount she could borrow to fund capital investment.

At the same time, she is set to announce sharp cuts to government spending across some unprotected departments as she seeks to rein in costs and balance the budget.

The Treasury declined to comment. National Highways did not immediately comment.

More than £1.2bn has already been spent on the project since it was first agreed in 2017, including on legal fees, consultations, land purchases and a community woodland.

In March, the government gave planning permission for the crossing, which Reeves has said is “infrastructure our country desperately needs”. No legal challenges to the permission were filed before a May 6 deadline.

The absence of objections has surprised experts, who are used to UK infrastructure projects being bogged down in court proceedings.

Mustafa Latif-Aramesh, partner at law firm TLT, said the lack of a court claim against the controversial road project suggested that the government’s proposed planning reforms were “having the desired effect”.

“The strong endorsement by the Department for Transport and the government’s strong signal it supports projects like this, which support growth, will have dissuaded challenges too,” he added.

A judicial review can add between £66mn and £121mn to a scheme and delay construction by a year or 18 months, a government review found last year. 

The government’s infrastructure and planning bill, currently winding its way through parliament, will make it harder for third parties to challenge development projects through the current judicial review process. 

However, there are concerns that it will weaken environmental protections as developers will be allowed to pay into a nature restoration levy scheme in an attempt to mitigate any environmental harm elsewhere.

Thames Water’s financial options are narrowing

KKR’s exit highlights difficulty of pursuing market-based solution for embattled utility

When one has manoeuvred oneself into a corner, frantic wriggling only causes further scrapes. That could reasonably describe the predicament of Thames Water. News that private equity group KKR has pulled out of a plan to provide it with £4bn in fresh equity highlights just how hard pursuing a market-based solution is for the embattled UK utility.

In theory, it is possible to make Thames Water investable — just about. It currently has about £20bn of regulated assets and £18bn of debt. Over the next five years, revenue — while growing — will do so more slowly than outflows. That, along with fines and other niggles, will leave it with negative free cash flow of perhaps £5bn. The good news, however, is that planned investments will raise its regulated capital value to about £32bn — the main source of value creation.

On these very rough assumptions, Lex calculates that an investor injecting £4bn of equity could stand to double their money. If, that is, they can impose a 30 per cent haircut on existing debt and — most challenging of all — turn the utility’s performance around. It’s a reasonable, rather than huge, return on investment given Thames Water’s turbid history.

A sharper haircut on debt could invite a new equity investor rescue. However, senior bondholders — a group including Elliott Management, Aberdeen and many others — need to approve any voluntary recapitalisation in practice, so the space to impose punitive conditions may be limited. 

That puts the onus on the government and regulators to provide an environment that is suitably lenient — in terms of bills, fines and performance metrics — so as to make the investment stack up. Presumably, under current conditions, it doesn’t for KKR, which has now walked off into the sunset.

Other interested parties may face similar challenges. The other “market” alternative is for Thames Water to pursue a restructuring plan proposed by the bondholders themselves, which also envisages haircuts and junior capital injections in the form of new equity.

But while the details of this proposal have not been disclosed, and holders of existing debt with skin in the game may be supportive, it is rare for companies with only one option on the table to get the very best deal.

There is, of course, another route. Putting Thames Water into special administration — a form of temporary renationalisation — would not be popular with the utility’s creditors. It would also be politically fraught, encumber public finances further, and might well send a poor signal to those looking to invest in UK infrastructure, whom the government needs onside. 

But through a series of mis-steps, the UK has already manoeuvred itself into an uncomfortable space. Meanwhile, Thames Water is flailing around raising expensive emergency debt, paying large adviser fees and running auction processes that end up with few serious bidders. A chance to restructure under public ownership looks like the pick of a bad bunch.

Friedrich Merz plans €46bn corporate tax breaks to revive German economy

Finance minister Lars Klingbeil will outline measures to boost corporate investments amid threat of US tariffs

Germany’s new government will seek to pass a €46bn package of corporate tax breaks over the summer in an effort to jolt the Eurozone’s largest economy out of stagnation.

Finance minister Lars Klingbeil, a Social Democrat, will outline the measures during a cabinet meeting on Wednesday. The tax incentives, which include deductions for new equipment and new electric vehicles, will cost about €46bn in total by 2029, when the coalition’s term expires, according to government estimates seen by the Financial Times.

“Following a period of economic stagnation, it is important to raise the potential of the German economy significantly,” reads the draft bill. The measures are meant to “send a strong signal for the short-term and long-term competitiveness of Germany as a business location.”

The initiatives come in addition to a massive debt-funded public spending plan of more than €1tn to modernise Germany’s armed forces and ageing infrastructure — the central plank of Chancellor Friedrich Merz’s efforts to revive the economy.

The leader of the Christian Democrats, who campaigned on a pro-business platform, has also vowed to subsidise electricity costs for the country’s struggling manufacturing industry. A ministry has been created to slash bureaucracy and speed up digitisation of the administration.

The planned tax breaks would be “good for Germany as a place to invest”, said Holger Schmieding, chief economist at Berenberg. “But this can only be the start. Easing the regulatory burden will be more difficult but also more important.”

From July 1, companies would be able to deduct 30 per cent of the cost of new machinery and other equipment from their tax bill annually between 2025 and 2027.

From 2028, the federal corporate tax rate of 15 per cent would then decrease by one point each year to 10 per cent. Companies will also be allowed to depreciate 75 per cent of the purchase price of new electric vehicles on year one, and thus reduce their taxable income. The government intends to introduce more advantageous tax incentives for R&D spending.

Robin Winkler, head of German macro at Deutsche Bank, said the proposals should provide a “welcome short-term stimulus for the manufacturing sector”.

Merz’s coalition with the Social Democrats expects the measures to be adopted by the two houses of parliament by the end of the summer.

Merz’s economic plan signals a policy shift for a country that, not long ago, stood as the EU’s standard-bearer for fiscal discipline.

The export-oriented nation — already struggling with Chinese competition and higher energy costs — has seen minimal growth over the past three years. Economists warn that renewed threats of 50 per cent US tariffs on European goods could push the economy into contraction this year.

In the third quarter of 2024, Germany’s corporate investments in plant, machinery and vehicles were 9 per cent below the pre-pandemic level, according to German development bank KFW.

They were 11.5 per cent higher in the US and 1 per cent higher in the EU as a whole in the same period.

Public and private R&D expenditures were also lower than in other countries: while Germany spent 11 per cent more in intellectual property than before the Covid-19 pandemic, the US spent 36 per cent more and France 27 per cent more in areas such as AI, according to KFW.

Cheaper and quicker-to-produce weapons are needed to deter Russia and other threats

Russia’s war on Ukraine has thrown up a particular challenge for the defence industry: why use highly expensive missiles to take down cheap drones, especially when there might be hundreds of them?

Military chiefs and politicians across Europe have acknowledged the new nature of warfare coming out of Ukraine. “The war in Ukraine is a strange combination of old-fashioned World War 1-World War 2 trench tactics, and a new kind of warfare using drones,” says Anders Fogh Rasmussen, the former head of Nato.

That in turn requires both new technology and much greater scale in armed capability. The latter is mostly about the sheer number of soldiers that might be needed, especially given the cavalier disregard for casualties shown by Russia, the main likely adversary for most European countries. But it is also about the required weaponry. Ukraine has shown the power of drone warfare, most recently and audaciously with its blowing up of multiple Russian aircraft deep inside enemy territory.

Myriad start-ups are popping up to address this issue across Europe as both entrepreneurial spirit and venture capital pour into the defence sector. Many of these new businesses say it is not just drones that are needed but also good anti-drone air defence that does not cost huge amounts of money.

“The cost-to-kill ratio is terrible. Current anti-drone, short-range air defence kit can cost €500,000 versus €20,000 drones,” says Kusti Salm, chief executive of Estonian start-up Frankenburg Technologies.

Europe’s defence industry is highly fragmented with many countries having one or multiple national champions. These may be good at producing complicated and costly large systems such as fighter jets, submarines and some missile defence.

However, Europe desperately needs these new start-ups and their potentially cheaper and quicker-to-produce weapons if the continent wants to be able to deter Russia given that various ministers across the continent are warning that Moscow could turn its attention to Nato countries within anything from three to 10 years. While Ukraine has become highly proficient at drone warfare, so too has Russia. Europe outside Ukraine lags a long way behind.

Another start-up in this space is Nordic Air Defence, a Swedish company that aims to produce an inexpensive drone interceptor for both military and civil use. Karl Rosander, NAD’s chief executive, says that one artillery grenade currently costs more than 80 times its pre-Ukraine war price while getting hold of large amounts of air defence missiles quickly is all but impossible.

“What happens if we get into a war and we need to scale production dramatically? We can’t right now. We need to have defence systems more at the same cost level as drones,” he says, adding that NAD’s solution — due to go into production next year — should be a tenth of the current cost.

That’s a similar level to what Frankenburg is aiming at. “The big problem with the defence industrial space in Europe, as well as the US, is simple: the weapons currently produced are outrageously expensive, and available at very low number. We need 10-100 times more, and 10 times cheaper,” Salm says, adding that his company is targeting a price of much less than €50,000 for its short-range rockets.

Rasmussen, also a former Danish prime minister, believes nation states need to step up defence spending dramatically to something like 5 per cent of GDP, investing in a “mass of fighter jets, tanks and heavy equipment”. But also needed is private investment that backs start-ups in new technologies such as drones.

In the past, environmental, social and governance concerns have stopped many fund managers from backing defence groups. But signs are emerging of more investment happening, with start-ups reporting strong demand from VCs, angel investors and family offices chasing the high growth that defence companies look to offer in the coming decade.

One question is whether over time that will affect the established defence industry. Salm argues that it “needs to be disrupted in every respect”, saying existing big firms would offer a new product that is only a few per cent better than the old one, but for a much higher price. “The bigger challenge is a product that is 10 per cent inferior, but 50 per cent cheaper, and can be manufactured by factors of hundreds,” he says.

The task is particularly urgent for Europe. Russia and China have both made drone technology a priority. Europe needs to unleash its start-ups to do likewise.

Bank’s year-long tussle with government will come to a head with proposals to be unveiled on Friday

The Swiss government on Friday will lay out its long-awaited reforms to the country’s bank capital rules, and the centrepiece proposal will affect just one company: UBS.

Switzerland’s Federal Council and financial regulators have been at loggerheads with the country’s largest lender — and most systemically important company — since last year when they proposed strengthening the country’s banking system in the wake of Credit Suisse’s demise.

The uncertainty has weighed on UBS’s share price, with the stock falling 3 per cent over the past year, while the Euro Stoxx Banks index, which tracks the biggest lenders in the Eurozone, has climbed about 40 per cent.

The draft legislation on Friday will set out a series of measures as part of a “too-big-to-fail” package. By far the most important will be the proposals for how much loss-absorbing capital UBS will be forced to have.

The bank’s executives believe they are being punished for the mismanagement of Credit Suisse — including by regulators — in the years before its collapse and subsequent rescue by UBS. 

In 2017, Finma granted Credit Suisse capital relief which in effect allowed the bank to inflate the value of its foreign subsidiaries. Last year, Swiss lawmakers criticised Finma for the move, calling it “incomprehensible”.

Despite an extensive public and private lobbying campaign by UBS’s leadership, senior figures at the bank are resigned to the government proposing what they see as the most “extreme” option: forcing it to fully capitalise its foreign subsidiaries, a move it says would increase its total capital requirements by 50 per cent from current levels.

But the way in which the government imposes the additional capital requirements on UBS — as well as details surrounding the implementation timeline — will be crucial to the severity of their impact on the bank.

At the centre of the stand-off between UBS and Switzerland’s political and regulatory establishment is a proposal that banks with foreign subsidiaries be subject to additional capital demands to deal with future crises.

Officials have argued that, given the size of the combined bank since the Credit Suisse acquisition — it now has a balance sheet larger than Switzerland’s economy — UBS needs more capital as a buffer against potential losses at its international units.

At present, UBS is required to match 60 per cent of the capital at its international subsidiaries — such as the US and UK — with capital at the parent bank. Forcing the lender to match the entire capital at these units would increase its requirements by about $25bn, according to the company and analysts.

“The Federal Council views a less than 100 per cent backing as problematic during a crisis when the value of foreign subsidiaries deteriorates fast, as a hypothetical fire sale of a foreign subsidiary could materially dent the capitalisation of the parent company,” said Giulia Aurora Miotto, an analyst at Morgan Stanley.

The Federal Council could require UBS to boost capital either by requiring it to fully deduct its foreign subsidiaries from equity, or by increasing their risk-weighting.

Regulators determine how much capital is required to support risk-weighted assets, or RWAs.

Under the current regime, UBS’s foreign subsidiaries will by 2028 have their capital risk-weighted at 400 per cent. The Federal Council could increase that to about 600 per cent if it wanted UBS’s parent company to fully match the foreign subsidiaries’ capital.

Aurora Miotto said the risk-weighted approach “would lead to a lower impact” for UBS, while the capital deduction approach — regarded as the more likely outcome — would be “more penalising”.

Analysts at RBC, including Anke Reingen, co-head of global financials research, said their “base case” was that UBS would be required to make a “full [capital] deduction”, adding: “Every $1bn in additional capital needed is a 1 per cent hit to the market cap [of UBS].”

If UBS were forced to fully capitalise its foreign subsidiaries, it would push the bank’s core equity tier 1 ratio — a key measure of capital strength — to between 17 per cent and 19 per cent, according to the bank’s calculations, significantly above the level required of its international peers.

Other global systemically important banks such as HSBC, Deutsche Bank and Morgan Stanley have minimum CET1 requirements of 11.1 per cent, 11.3 per cent and 13.5 per cent respectively.

Analysts at Goldman Sachs said the proposed increase to UBS’s CET1 ratio would “significantly impair [its] competitiveness versus large international peers”.

This is a point that UBS’s senior management, including chief executive Sergio Ermotti and chair Colm Kelleher, have been at pains to stress in recent months.

“We are not magicians,” Ermotti said in April. “We are not going to be able to be competitive and provide and be an engine of growth for the financial centre, but also for the economy, if the regulatory framework is not competitive.”

Separate to the anticipated reforms, UBS is already adding about $20bn to its capital because of Switzerland’s early implementation of global rules, and its increased size following the Credit Suisse takeover.

As a result, there has been speculation UBS may need to offload some of its international businesses.

“Depending on the amount of additional capital required, some businesses may become uneconomical for UBS, and this could lead to strategic decisions for the bank, like the potential to sell the US business,” said Morgan Stanley’s Aurora Miotto.

Such a move would be a blow to Ermotti and Kelleher’s ambition of turning UBS into a European version of Morgan Stanley, which also has a large wealth management operation but trades at a much higher multiple than its Swiss peer. UBS has identified US growth, especially in wealth management, as a key strategic priority.

The Federal Council will announce on Friday whether the capital reforms will be implemented via government ordinance — in effect an executive order — or if the legislation will be put to parliament for consultation.

While the latter option would give UBS the ability to lobby politicians to water down the new regime as the bill is amended, it would also prolong the uncertainty facing the bank. Industry observers have estimated that the proposed law might not come into force until 2028 or even 2029.

There is also the question of how long UBS will be given to implement the new capital regime once it is finalised. Morgan Stanley analysts said: “Anything below 10 years would be a negative, while a longer timeline would be taken positively by the market.”

RBC estimated that, based on its analysts’ forecasts for the bank’s free cash flow from 2030, every additional phase-in year would provide UBS with $4bn of capital.

Jérôme Legras, a managing partner at Axiom Alternative Investments said one way UBS could mitigate the impact of higher capital requirements would be to bring excess capital back from its subsidiaries to the parent bank.

For example, he said, if one international subsidiary had $13bn of capital, but the local supervisor only required $10bn, UBS could repatriate $3bn. Such a move would require approval from the local supervisor, but Legras said that UBS was likely to ask for the minimum amount needed in each subsidiary.

The government is also expected to publish on Friday proposals to boost capital quality, changing the treatment of assets that are not sufficiently recoverable in a crisis, such as in-house software costs and deferred tax assets (DTAs). RBC estimates that these adjustments could take up to 2 percentage points off UBS’s CET1 ratio.

Friday’s announcement is a “significant risk event” for UBS’s share price, according to analysts at Morgan Stanley. They put the potential size of the stock move on the day at 5 per cent — up or down.

After more than a year of uncertainty, UBS will get some clarity on the scale of the regulatory challenge it faces — even if the centrepiece proposal is likely to be an unwelcome one for the bank.