Credit Suisse writes down the aftermath, UBS (UBS.US) attempts to issue AT1 bonds

Zhitong Finance App learned that UBS Group (UBS.US) is testing investors' willingness to subscribe for additional Tier 1 capital (AT1) bonds in the Swiss banking sector against the backdrop of an adjustment period and the final disposal plan for AT1 bonds written down by Credit Suisse pending.

According to people familiar with the matter, UBS plans to issue two batches of AT1 bonds denominated in US dollars. One batch is redeemable in 2031, with an initial guide interest rate of about 7.125%; the other batch is redeemable in 2036, with an initial guide interest rate of about 7.5%.

According to compiled data, if this offering is successfully implemented, it will be UBS's first AT1 bond transaction since September last year. According to reports, at the time, the Swiss Federal Administrative Court rescinded a 2023 regulatory order — the order required Credit Suisse to write down the full amount of AT1 bonds worth about 17 billion US dollars in transactions acquired by UBS. Currently, the court has yet to decide whether this write-down will eventually be overturned, and banking regulator Finma has made it clear that it will appeal the ruling.

A senior Swiss lawmaker proposed in December last year to allow UBS to use AT1 bonds (not shares) as capital support for its overseas subsidiaries. This move, if implemented, could ease the pressure on UBS due to the more stringent capital requirements that are being prepared.

“Interest spreads on UBS bonds have come under some pressure recently,” said Alexander Pelteshki, portfolio manager at Aegon Asset Management. “On the one hand, this stems from UBS's impressive performance recently, and on the other hand, the market anticipates that it may issue additional AT1 bonds to meet capital requirements. Judging from the current Initial Price Guide (IPT), the pricing of this batch of bonds did have some premium appeal in the early stages.”

UBS representatives declined to comment.

Simon Adamson, head of the financial industry at credit analysis agency CreditSights, pointed out in a research report sent to clients on Monday that potential adjustments to Swiss capital regulation rules and the remaining issues of Credit Suisse AT1 bonds are uncertain factors that are difficult to resolve in the short term, and may continue to suppress the spread performance of UBS AT1 bonds.

It is worth mentioning that this offering will be the world's first AT1 bond in 2026. The market expects that due to moderate refinancing needs of major banks, the global supply of AT1 bonds will be relatively limited this year.