Scope Ratings has today downgraded certain Tier 2 securities issued by Credit Suisse AG and UBS AG to BBB+ with a Stable Outlook from A-. The Swiss Federal Council has recently adopted new capital requirements for systemically important banks in Switzerland. The provisions include the grandfathering of Tier 2 securities such that they qualify as going concern capital until the earlier of their first call date, maturity or 31 December 2019. Afterwards, they will qualify as gone concern capital.

The securities are being downgraded by one notch in line with Scope’s bank capital instruments rating methodology which starts with a minimum notching of two notches when rating Tier 2 securities. In a bail-in scenario, Tier 2 securities are considered capital instruments and rank below non-Tier 2 subordinated debt and senior debt. As well, Tier 2 securities may be converted or written down during early regulatory intervention (and before resolution) which is not the case with non-Tier 2 subordinated debt. Consequently, Scope rates Tier 2 securities lower than non-Tier 2 subordinated debt.

Scope further notes that the rating actions do not reflect any fundamental change in how the rating agency assesses the risks of Tier 2 securities.

The following Tier 2 securities were downgraded:

• Credit Suisse AG 6.5% USD 2.5bn Tier 2 Capital Notes due 2023 to BBB+, Stable Outlook
• Credit Suisse AG 5.75% USD 1.25bn Tier 2 Capital Notes due 2025 to BBB+, Stable Outlook
• UBS AG 7.25% USD 2bn Tier 2 Subordinated Notes due 2022 to BBB+, Stable Outlook
• UBS AG 7.625% USD 2bn Tier 2 Subordinated Notes due 2022 to BBB+, Stable Outlook
• UBS AG 4.75% USD 1.5bn Tier 2 Subordinated Notes due 2023 to BBB+, Stable Outlook
• UBS AG 5.125% USD 2.5bn Tier 2 Subordinated Notes due 2024 to BBB+, Stable Outlook
• UBS AG 4.75% USD 2bn Tier 2 Subordinated Notes due 2026 to BBB+, Stable Outlook

All other rated capital securities of Credit Suisse and UBS are not affected.


Regulatory disclosures
Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013

Responsibility
The party responsible for the dissemination of the financial analysis is Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Executive Board: Torsten Hinrichs (CEO), Dr. Stefan Bund and Dr. Sven Janssen.
The rating analysis has been prepared by Pauline Lambert, Executive Director.
Responsible for approving the ratings: Sam Theodore, Managing Director.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months. A rating change is, however, not automatically ensured.

Information on interests and conflicts of interest
The ratings of Credit Suisse AG were prepared independently by Scope Ratings without a mandate (unsolicited rating) but with participation of the issuer. The ratings of UBS AG were prepared independently by Scope Ratings but for a fee based on a mandate of the issuer.
As at the time of the analysis, neither Scope Ratings AG nor companies affiliated with it hold any interests in the rated entity or in companies directly or indirectly affiliated to it. Likewise, neither the rated entity nor companies directly or indirectly affiliated with it hold any interests in Scope Ratings AG or any companies affiliated to it. Neither the rating agency, the rating analysts who participated in this rating, nor any other persons who participated in the provision of the rating and/or its approval hold, either directly or indirectly, any shares in the rated entity or in third parties affiliated to it. Notwithstanding this, it is permitted for the above-mentioned persons to hold interests through shares in diversified undertakings for collective investment, including managed funds such as pension funds or life insurance companies, pursuant to EU Rating Regulation (EC) No 1060/2009. Neither Scope Ratings nor companies affiliated with it are involved in the brokering or distribution of capital investment products. In principle, there is a possibility that family relationships may exist between the personnel of Scope Ratings and that of the rated entity. However, no persons for whom a conflict of interests could exist due to family relationships or other close relationships will participate in the preparation or approval of a rating.

Key sources of information for the rating
Website of the rated entity/issuer, Annual reports/quarterly reports of the rated entity/issuer, Current performance record, Detailed information provided on request, Data provided by external data providers, Interview with the rated entity, External market reports, Press reports / other public information,
Scope Ratings considers the quality of the available information on the evaluated company to be satisfactory. Scope ensured as far as possible that the sources are reliable before drawing upon them, but did not verify each item of information specified in the sources independently.

Examination of the rating by the rated entity prior to publication
Prior to publication, the rated entity was given the opportunity to examine the rating and the rating drivers, including the principal grounds on which the credit rating or rating outlook is based. The rated entity was subsequently provided with at least one full working day, to point out any factual errors, or to appeal the rating decision and deliver additional material information. Following that examination, the rating was not modified.

Methodology
The methodologies applicable for this rating “Bank Rating Methodology” (May 2016) & “Bank Capital Instruments Rating Methodology” (May 2016) are available on www.scoperatings.com. The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s credit rating, definitions of rating symbols and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.

Conditions of use / exclusion of liability
© 2016 Scope Corporation AG and all its subsidiaries including Scope Ratings AG, Scope Analysis, Scope Investor Services GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope cannot, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided “as is” without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or otherwise damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party, as opinions on relative credit risk and not as a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings AG at Lennéstraße 5 D-10785 Berlin.

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