UBS engaged in discussions with Swiss authorities, including the Swiss National Bank (SNB), regarding its acquisition of Credit Suisse (CS). This meeting marked a pivotal moment in the ongoing financial crisis, as UBS unveiled its intentions to execute a de facto takeover of CS.
A significant revelation from this meeting was UBS's proposal to write off $17 billion in Additional Tier 1 (AT1) bonds. The AT1 bonds became a focal point of contention, and UBS's initial demands had not included the write-off of these bonds. However, the urgency of the situation led to a shift in strategy, and UBS introduced the concept of the AT1 wipe-out during the discussions.
The Financial Market Supervisory Authority (Finma) played a crucial role in the decision-making process regarding the AT1 bonds.
UBS had been preparing for the takeover since mid-2022 and had effectively dictated the terms of the merger, including the controversial write-off of the AT1 liabilities. This strategic maneuver allowed UBS to report a profit of nearly $30 billion in 2023.
The implications of the AT1 wipe-out extend beyond UBS's balance sheet, as investors who held these bonds faced total losses. Legal actions have been taken against UBS and the Swiss government, potentially placing additional financial burdens on Swiss taxpayers.
The political ramifications of UBS's actions and the subsequent AT1 bond write-off have sparked significant debate within Switzerland. The negotiations surrounding the AT1 bonds were framed as a necessary concession to ensure the stability of the Swiss banking system, but critics argue that this decision favored UBS at the expense of investors and the public.
The perception of UBS as a "generous" player in the crisis has been challenged by revelations of its strategic positioning and the significant financial gains it reaped from the merger. The ongoing legal battles and potential liabilities for the Swiss government serve as a reminder of the complexities inherent in financial crises.