Moody's reported yesterday that creditors of both Credit Suisse and UBS will benefit from recent changes introduced and approved by the Swiss Federal Council relating to TBTF. The leverage and going concern/gone concern capital requirements are credit positive to bondholders as the quantum and quality of loss absorbing capital rise. As a result of of the rules at both a global and national level, leverage ratio requirements are going up.
As a result of the global rules, banks in Switzerland face 5% leverage rations supported by CET1 capital and AT1 instruments. However, as a result of further Swiss finish leverage rules AKA gone-concerned capital requirements, analysts expect both large Swiss banks to issue holding company debt as TLAC eligible senior debt for a further 5% of capital further enhancing capital levels and support the credit worthiness of senior creditors as the rules are phased in. The rating agency continues to identify so-called execution risk, also faced by other banks such as DB, in re balancing their activities, optimizing returns, reducing RWAs and now leverage while retaining important clients. The game of banking twister continues in Switzerland.
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