Norway’s sovereign wealth fund has given its backing to UBS’ plan to enhance the appeal of its Additional Tier 1 (AT1) bonds to investors by safeguarding them from a write-off. The fund, which is UBS’ second-largest shareholder, also approved UBS CEO Sergio Ermotti’s remuneration package.
UBS seeks to strengthen its capital buffers to satisfy Swiss regulators’ demands following the integration of Credit Suisse. The Norwegian fund’s support provides a boost to UBS in this endeavor.
AT1 bonds, designed to absorb losses if a bank’s capital falls below a certain level, have gained prominence since the 2008-09 financial crisis. However, concerns arose after Swiss regulator FINMA wrote down Credit Suisse’s AT1s in 2023.
UBS has responded by modifying the terms of its AT1 bonds, offering conversion into shares in case of trouble. This has generated strong demand, as evidenced by the $3.5 billion issuance in November 2023.
The Norwegian fund’s endorsement of UBS’ plan to make AT1 bonds more attractive could stimulate demand for these instruments and aid banks in times of financial stress.
UBS CEO’s Compensation
The Norwegian fund also supported UBS CEO Sergio Ermotti’s pay package, which includes his salary for 2023. Ermotti’s compensation has been the subject of criticism in Switzerland, with some calling it excessive.
However, the Norwegian fund has previously expressed concerns about excessive executive pay, particularly in the United States.
Implications for UBS
The Norwegian fund’s support for UBS’ AT1 bond plan and Ermotti’s pay package provide a boost to the bank’s efforts to strengthen its financial position and position itself for future growth.
UBS will continue to face challenges, particularly in the highly competitive Swiss banking market. However, the support of major shareholders like the Norwegian fund provides a solid foundation for the bank’s continued success.
