New Swiss AT1 Proposal Could Save UBS Hundreds of Millions Annually
nashnova research
A Swiss parliamentary committee passed a compromise letting UBS replace part of its core capital with roughly $13 billion in AT1 bonds. Investors estimate the switch could save hundreds of millions of dollars annually — a result that would reshape UBS's global capital structure.
What exactly changed in the proposal?
Finance Minister Karin Keller-Sutter originally demanded UBS hold an extra ~$20 billion in CET1 — common equity tier-1 capital, the hardest form of a bank's own money — to fully cover its foreign subsidiaries.
The committee's compromise: a 50% core capital + 50% AT1 mix. AT1 — additional tier-1 bonds that can be written down or converted to equity in a crisis — would cover roughly $13 billion.
This means → UBS no longer needs to fund the full requirement with its most expensive capital. Half can come from cheaper bond instruments.
How much cheaper — and where do the savings come from?
Filippo Alloatti, head of financials credit at Federated Hermes, estimates UBS's 10-year AT1 funding cost at roughly 7% under the new trigger terms. CET1 carries an implied cost of about 9%–10%.
In plain terms = on $13 billion, AT1 interest runs 2–3 percentage points lower per year than CET1 — that gap adds up to hundreds of millions of dollars annually.
The new trigger provisions would push AT1 costs up by 25–50 basis points from current levels. The saving is relative to CET1, not free.
How is the market reading this?
Alloatti called the 50/50 proposal "a victory for UBS," but noted the irony: Switzerland concluded AT1 was no crisis firewall — then gave the instrument a bigger role.
Luca Evangelisti, investment manager at Jupiter, said the premium from the new terms should be quite limited — bond spreads widened only modestly in the days after the announcement.
This reflects a market that is not panicking over AT1's return. Investors have largely priced in the policy shift.
What does the Credit Suisse AT1 wipeout tell us?
When UBS acquired Credit Suisse in 2023, roughly CHF 16 billion (~$19.6 billion) in Credit Suisse AT1 bonds were written down to zero. Holders have since pursued lengthy legal recovery efforts.
This means → AT1 is not an ordinary bond. In a crisis it can be wiped out entirely, leaving investors with far more risk than typical creditors bear.
UBS says the committee's proposal would provide clearer rules for AT1 instruments and bring Swiss standards closer to EU and UK regulatory practice.
Can this proposal actually pass?
The bill goes to Switzerland's upper house this Thursday. Lawmakers expect a relatively high chance of approval there, but the lower house is expected to be more cautious and harder to win over.
UBS CEO Sergio Ermotti praised some lawmakers' efforts but warned that "extreme" proposals remain under discussion, and even the current plan would impose significant additional costs.
A final decision on capital rules could come as early as year-end but more likely slips to 2027 — this fight is far from over.
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