European banks have finally tired of waiting for regulatory clarity on their future capital requirements, and they have been bringing forward capital securities issues in greater numbers. A popular tactic has been to target the well-heeled end of the retail market, with a particular eye on Asia. That plays to UBS’s strategic preoccupation with wealth management as well as its investment banking skills, and the bank’s debt capital markets (DCM) team has led a goodly proportion of these recent deals.
The financial crisis exposed the weaknesses in the role of banks’ hybrid debt capital, supposed to absorb losses but designed to work in a bankruptcy court rather than a global meltdown. When it came to the biggest banks, the too-big-to-fail institutions, either the subordinated debt did not absorb the losses because the bank was bailed out or it did so in an ad hoc way. In a few cases, it was simply too late because the bank failed. So at the behest of the Basel Committee on Banking Supervision, regulators have been addressing this issue along with all the others arising from the crisis.
