Norway Wealth Fund Supports UBS Capital Plan and Ermotti’s Pay

Norway’s sovereign wealth fund has thrown its weight behind UBS’ strategy to make its Additional Tier 1 (AT1) bonds more attractive to investors by safeguarding them from potential losses. The fund, which is UBS’ second-largest shareholder, also approved UBS CEO Sergio Ermotti’s compensation package at the bank’s annual general meeting this week.

This move by the Norwegian fund is a significant boost for UBS as it works to bolster its capital buffers to meet the demands of Swiss regulators, especially in the wake of its integration with Credit Suisse. However, this strategy could come at a cost for shareholders, who may face dilution of their holdings in times of crisis.

AT1 bonds have gained prominence since the global financial crisis of 2008-09 as a way for banks to absorb shocks to their capital levels. These bonds can be converted into equity or written off, providing a safety net for banks in times of distress.

UBS recently saw strong demand for its AT1 bonds following its acquisition of Credit Suisse, as it made the terms more appealing to investors. The bank promised a conversion into shares in case of trouble, a move that resonated well with investors.

The Norwegian fund’s support for UBS’ initiatives underscores its confidence in the bank’s strategy and leadership. With the fund owning a significant stake in UBS, its backing carries weight in the financial industry. This development highlights the importance of investor confidence in shaping the direction of major financial institutions like UBS.