Switzerland's Economic Affairs and Taxation Committee approved a compromise allowing UBS to meet 50 percent of its roughly $20 billion new capital requirement through AT1 subordinated debt instead of equity, according to lawmakers on August 31.
AT1 bonds are hybrid instruments that sit between equity and traditional debt in a bank's capital stack. They convert to equity or suffer partial write-downs if the bank's capital ratios fall below regulatory thresholds. The compromise lets UBS cover approximately $10 billion of its capital shortfall through AT1 issuance rather than equity raises, which would dilute existing shareholders.
The Swiss National Bank and Financial Market Supervisory Authority FINMA had imposed the $20 billion capital requirement on UBS in March 2023 following the bank's emergency merger with Credit Suisse, engineered by the regulator to prevent systemic collapse. UBS has argued that meeting the full amount through equity would be unnecessarily punitive given the merger was a state-backed resolution, not a failure of UBS's own risk management. The bank has already raised equity capital in multiple tranches since the crisis.
The committee's approval moves the proposal to the Council of States, Switzerland's upper house, for a full vote expected in September. Final legislative passage is targeted for the end of 2026. The compromise addresses pressure from UBS and its shareholders while preserving regulatory flexibility through AT1 conversion features. AT1 instruments absorbed significant losses during the 2023 banking turmoil without triggering equity conversions at the largest European institutions.
UBS has not disclosed plans to issue new AT1 debt contingent on this approval, and the amount and timing remain subject to market conditions and regulator sign-off. FINMA retains authority to adjust capital requirements if systemic risk assessments change. The approval comes after a regulator engineered a merger without formal equity from UBS's owners, a situation distinct from traditional bank failures resolved through shareholder losses alone.
The parliament's upper house has two votes remaining before implementation. If the full Council of States or final parliament rejects the compromise in September or Q4 2026, UBS would face the original $20 billion all-equity requirement, forcing either a larger shareholder dilution or a longer capital-raise timeline. The number that decides it is whether parliament votes before year-end; delay past December 31, 2026, would push implementation into 2027 and extend UBS's capital-raising period.
