Beyond the UBS–Credit Suisse Case: The AT1 Verdict and the New Geography of Financial Risk

Lorenzo De Sario
Nov 6
3 min read

The Turning Point for European Banking Capital

On October 14, 2025, the Swiss Federal Administrative Court ruled that the cancellation of USD 17 billion in Additional Tier 1 (AT1) bonds issued by Credit Suisse, decided in March 2023 during its acquisition by UBS, lacked a legal basis. This landmark decision challenges the post-2008 regulatory framework that has defined European finance for nearly two decades. For the first time, the legitimacy of AT1 instruments—designed to strengthen banking resilience—has been fundamentally questioned.

What AT1 Bonds Represented

AT1 instruments were introduced as a hybrid form of capital meant to absorb losses and prevent taxpayer-funded bailouts. These perpetual, high-yield securities can be converted into equity or written down if a bank’s capital ratios drop below specific thresholds.

During the Credit Suisse crisis, FINMA, Switzerland’s financial authority, chose to write down the entire AT1 base while still allowing shareholders to receive UBS shares. That reversal of creditor hierarchy—erasing bondholders while protecting equity investors—shook confidence in the logic of regulated capital.

The Legal Reversal and Its Implications

Two years later, the Swiss court reversed that decision, ruling that FINMA had exceeded its legal authority. This opens the door to multibillion-dollar compensation claims and forces investors to reconsider how systemic risk is distributed.

If UBS were compelled to restore part of the AT1 value, its Common Equity Tier 1 (CET1) ratio could drop from 14.4% to about 10.9%. Beyond the direct cost, the reputational fallout is profound: instruments designed to contain crises have themselves become sources of instability.

Rethinking Creditor Hierarchy and Risk Pricing

The verdict reignites a central debate: if regulators cannot fully exercise discretion over subordinated instruments, can AT1 capital still function as a stabilizing buffer? Investors, now aware of this ambiguity, will likely demand higher yields, increasing funding costs for banks issuing hybrid capital.

This may lead capital to flow away from regulated AT1 markets toward private, contract-based structures—where risk allocation is legally defined, not administratively imposed.

The Rise of Private Capital Structures

Private markets—particularly private equity, private credit, and venture capital—stand to gain from this realignment. Sophisticated investors can replicate AT1-like profiles through:

SPVs with senior, mezzanine, and junior tranches,
hybrid instruments combining debt and equity features,
private securitizations of illiquid portfolios.

In these structures, risk and return are determined transparently by contract, rather than left to regulatory discretion.

A New Geography of Financial Trust

Private finance offers a clear advantage: flexibility, contractual precision, and transparent governance. Jurisdictions that favor innovation are emerging as hubs for customized capital design.

For institutional investors, family offices, and wealth managers once reliant on AT1 yields, this shift opens the door to instruments offering greater control, predictability, and alignment of interests.

The Broader Meaning of the AT1 Verdict

The Credit Suisse ruling does not end hybrid capital—it redefines it. The line between regulated and private finance is blurring, as trust migrates from authority to contract, from supervision to structure.

This transition signals the start of a new era: one where financial innovation, legal clarity, and responsibility—not regulation alone—become the cornerstones of stability. In that sense, the AT1 crisis marks not the collapse of a system but its reinvention around transparency and accountability.

Strategic Insight by CGPH Banque d’affaires

The AT1 verdict highlights a global inflection point in capital markets: credibility is shifting from regulation to design. At CGPH Banque d’affaires, we interpret this as a call for deeper financial engineering—where value, structure, and governance converge to redefine resilience.

Innovation built on clarity is the new foundation of trust.

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