UBS eyes millions in savings as Swiss lawmakers weigh AT1 capital shift

The proposal, currently advancing through the Swiss parliament, marks a significant pivot from the government’s initial stance. Finance Minister Karin Keller-Sutter previously insisted that UBS hold approximately $20 billion in Common Equity Tier 1 (CET1) capital to secure its international operations. Under the new committee-backed plan, UBS would be permitted to utilize $13 billion in AT1 debt, a move that aligns Swiss standards more closely with British and European Union regulations.

While the committee’s plan introduces new requirements—such as mandatory suspensions of payouts and share buybacks if capital ratios dip—investors view the trade-off as a net win. Filippo Alloatti of Federated Hermes estimates that while the new triggers may add 25 to 50 basis points to the cost of 10-year AT1 bonds, the overall expense remains far lower than the 9% to 10% cost associated with holding CET1 capital. By substituting a portion of its equity requirement with debt, UBS stands to secure substantial annual savings.

Despite the clear financial upside, the proposal faces a complex legislative road. Lawmakers expect the Swiss upper house to debate the measures this Thursday, though the path through the lower chamber appears less certain. The debate arrives in the shadow of the 2023 Credit Suisse collapse, where the write-down of 16 billion Swiss francs in AT1 bonds triggered a wave of litigation. While regulators remain wary of the instruments' crisis-resilience, the compromise offers a pragmatic middle ground for the nation’s only remaining global bank.