Norway’s sovereign wealth fund, the world’s largest, has thrown its weight behind UBS Group AG’s plan to make its Additional Tier 1 (AT1) bonds more attractive to investors by protecting them from a write-out. The fund, which is UBS’ second-largest shareholder, also voted in favor of CEO Sergio Ermotti’s pay package.
The support from the Norwegian fund provides a boost to UBS, which is seeking to bolster its capital buffers in order to meet Swiss regulators’ demands following its integration of Credit Suisse Group AG.
AT1 bonds, a type of debt that acts as a shock absorber if a bank’s capital levels fall below a certain threshold, have been promoted by regulators since the 2008-09 financial crisis. However, a writedown of Credit Suisse’s AT1s by Swiss regulator FINMA in 2023 sparked concerns among investors.
In response to these concerns, UBS has made changes to the terms of its AT1 bonds, including promising a conversion into shares in case of trouble. This has resulted in strong demand for the bonds, including a $3.5 billion issuance in November 2023.
The Norwegian fund’s support for UBS’ plan to make AT1 bonds more attractive could help to boost demand for these instruments and provide a lifeline to banks in times of stress.