Swiss Lawmakers Weigh AT1 Bond Compromise for UBS Capital

Swiss lawmakers are evaluating a regulatory compromise that would allow UBS Group AG to use Additional Tier 1 (AT1) convertible bonds to satisfy a $20 billion government capital demand. This alternative is less costly for the bank than the original proposal from the Swiss government, which required an increase in high-quality equity capital (CET1) to enhance crisis resilience.

The proposed reforms seek to ensure AT1 instruments can absorb losses earlier during a financial crisis, a measure intended to address the failures observed during the collapse of Credit Suisse. An influential committee of the parliament's upper house is scheduled to vote on these reforms on August 31.

While UBS supports the strengthening of AT1 instruments provided they align with international standards, other officials remain cautious. The Swiss National Bank argues that full equity backing for foreign units provides greater financial resilience, and Finance Minister Karin Keller-Sutter intends to monitor the global debate on AT1s before supporting domestic changes.