UBS Needs to Act Swiftly to Repair Its Capital Issue
Switzerland’s decision to wipe out a particular class of Credit Suisse bondholders creates a future funding dilemma for UBS.
The UBS takeover of Credit Suisse has created a capital problem.
Photographer: Francesca Volpi/BloombergZurich, we have a problem. The Swiss government, the central bank and market regulator Finma have obliterated $17 billion of AT1 debt in orchestrating the rescue of Credit Suisse Group AG, while allowing shareholders to collect a small but not insignificant payoff. That’s created a huge capital problem for the newly enlarged UBS Group AG that the banking behemoth needs to swiftly address.
The upshot of the weekend wipeout is a pending set of lawsuits and investors demanding to be paid a premium over other European yields to hold Swiss CoCos. Swiss AT1 bond terms were already harsher than those in other jurisdictions by typically including a complete writedown clause, whereas debt elsewhere in Europe is restricted to partial or temporary writedowns, or conversion to equity. This has big implications for UBS — the new owner of Credit Suisse — and its $12 billion of junior AT1 bonds.