UBS Group AG is exploring its first sale of additional tier 1 bonds since its rescue acquisition of collapsed Swiss peer Credit Suisse Group AG, people familiar with the bank’s plans said.
(Bloomberg) — UBS Group AG is exploring its first sale of additional tier 1 bonds since its rescue acquisition of collapsed Swiss peer Credit Suisse Group AG, people familiar with the bank’s plans said.
The sale of the risky instruments could come as early as September, one of the people added. There are no formal arrangements in place yet for an offering, and the bank could still decide not to press ahead. A spokesperson for UBS declined to comment.
Additional tier 1 bonds, which act as a capital buffer when banks run into difficulties, were the focus of investor angst when $17 billion of Credit Suisse AT1s were wiped out as part of its government-orchestrated takeover by UBS.
A last-minute tweak of Swiss law allowed this to go ahead even as Credit Suisse shareholders managed to preserve some value in the deal. This pushed Swiss AT1 bond spreads wider compared to European counterparts.
Two AT1 issues by UBS, a S$700 million ($516 million) bond and a $2.5 billion note, reach their first early repayment dates in November and January, respectively, based on data compiled by Bloomberg. Repaying them without new issuance would deplete the lender’s additional tier 1 capital bucket.
The market for AT1 debt was hit hard by the Credit Suisse collapse, but has since made something of a comeback, delivering strong returns for those who braved it. However, AT1s issued by UBS are still indicated wider compared to similar bonds from non-Swiss peers, based on data compiled by Bloomberg.
Supply has also returned. In June, banks sold the first euro-denominated issues since the Credit Suisse wipeout and BNP Paribas SA became the first to brave the US dollar market with $1.5 billion sale in August. Meanwhile, US heavyweights Goldman Sachs Group Inc. and Wells Fargo & Co. also resumed issuance of their own flavor of additional tier 1 capital, preferred shares, in recent weeks.
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