The FT reports that UBS is to pay the bonuses of 6,500 of its highest earners using bail-in bonds. This initiative is consistent with one of the central recommendations of the Liikanen Report (see our blogpost “Tough Times For UK Banks: The Liikanen Group Publishes its Final Report“) which said that bail-in debt should be used in the remuneration schemes of a bank’s top management.
According to the report, the bonds in question will pay a market-based rate of interest but would be written down to zero in the event that the bank’s regulatory capital fell below 7%. The bonds will fully vest after 5 years. In the currently regulatory environment, and with UBS shares having fallen off their recent peak, this may well be an offer many within UBS are happy to accept.