UBS wants to give itself more flexibility when issuing AT1 bonds. In order to achieve this, conversion capital of up to 70 million dollars is to be created in advance.
UBS shareholders will vote on the creation of conversion capital for AT1 bonds at the upcoming Annual General Meeting (AGM) in Basel on April 24. This can be seen from the agenda and the invitation to the AGM.
The creation of conversion capital in the maximum amount of $70 million is intended to simplify the issue of AT1 bonds. With a nominal value of 0.10 dollars per registered share, this corresponds to a volume of 700 million registered shares, or around 20 percent of the current share capital.
Higher TLAC requirement
The planned amendments to the articles of association are intended to help meet the capital and loss absorbency requirements for a Systemically Important Bank (SRB). The requirements for total loss-absorbing capital (TLAC), to which UBS is subject as an internationally active Systemically Important Swiss Bank, are among the strictest in the world, the statement continues.
«Following the acquisition of Credit Suisse, our larger balance sheet and greater market share in Switzerland will increase our need for going concern and TLAC,» reads the justification for the creation of the convertible capital. UBS aims to build up a going concern capital ratio of around 18 percent by 2029 and maintain its CET1 capital ratio at around 14 percent.
If approved by the shareholders, the conversion capital will also be reserved for the AT1 bonds already issued by UBS in November and February. These are approximately 78.3 million shares for each of the two tranches issued in November 2023 in the amount of $1.75 billion each, approximately 40.7 million shares for the AT1 bonds issued in February 2024 in the amount of $1 billion, and approximately 19.5 million shares for the AT1 bonds issued in February 2024 in the amount of S$650 million ($482 million).
Amortization or conversion
The creation of the conversion capital would provide flexibility in terms of the amount and timing of future AT1 issuances, it added.
The move will allow UBS to increase the attractiveness of its AT1 bonds to investors. In the event of a crisis, hedging with reserved equity can prevent exactly what occurred in the Credit Suisse takeover, namely a complete write-off.
In the eventuality of trigger events, these capital instruments are subject to a full write-down or conversion into equity. The fall in CET1 capital below the threshold of 7.0 percent of risk-weighted assets counts as a trigger event. This also includes an instruction from FINMA to write down or convert or the promise of extraordinary support from the public sector to avoid insolvency.
