UBS Gets Backing For Capital Plan From Norway Wealth Fund

Norway's sovereign wealth fund has supported UBS' plan to enhance the attractiveness of its Additional Tier 1 (AT1) bonds, a form of debt, to investors by safeguarding them from a wipeout.

The Norwegian fund is UBS' second-largest shareholder. I Photo: Allie_Caulfield Wikimedia Commons

The fund also approved UBS CEO Sergio Ermotti's pay package, as reported by Stefania Spezzati for Reuters.

The vote from the Norwegian fund, UBS' second-largest shareholder, at the bank's annual general meeting this week is a boost for UBS, which seeks to bolster its capital buffers to meet Swiss regulators' requirements as it integrates its former rival Credit Suisse.

However, this move could come at a cost for shareholders, who may see their holdings diluted in a crisis.

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 encouraged by regulators since the 2008-2009 global financial crisis.

The bonds can be converted into equity or written off. Last year, Swiss regulator FINMA sparked a crisis in the $275-billion market when it wrote down about $17 billion of Credit Suisse's AT1s as part of its rescue.

In a sale in November, the first since its takeover of Credit Suisse, UBS saw strong demand as it made the terms of the bonds more appealing, including promising a conversion into shares in case of trouble.