UBS Group said on Wednesday it would buy back 2.75 billion euros ($2.96 billion) worth of debt it sold just days ago in a bid to boost confidence among bondholders rattled by its $3 billion rescue of rival Credit Suisse.
The bonds were sold on March 9 and their repurchase by UBS highlights the lender’s efforts to shore up sentiment since its government-backed rescue of Credit Suisse on Sunday.
UBS is buying back the bonds at the price at which they were sold rather than at market prices, compensating investors after a sell-off this week.
“They’re trying to be friendly to investors who purchased just before the mess,” said Jerome Legras, head of research at Axiom Alternative Investments.
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UBS in a statement said it was buying back a 1.5 billion-euro 4.625 per cent fixed-rate note due March 2028 and a 1.25 billion-euro 4.750 per cent fixed rate note due March 2032.
The notes are loss-absorbing senior unsecured bail-in notes.
Credit rating agency S&P revised its outlook on the holding company of UBS, the issuer of the bonds, to negative from stable on Monday, reflecting pressure on creditworthiness linked to the Credit Suisse deal. S&P maintained its stable outlook on the operating company.
UBS shares and bonds have seesawed this week as investors assess the impact of the Credit Suisse deal.
On Monday the shares fell by as much as 17 per cent only to close 35 per cent higher than those lows on Tuesday.
UBS bonds also tumbled, with Additional Tier 1 (AT1 debt), a different form of bail-in debt, taking a big hit in particular on Monday after Credit Suisse’s AT1s were written down to zero as part of its rescue.
Credit Suisse AT1 bondholders got nothing, which the bank’s AT1 prospectus spelled out could happen in Switzerland, but markets were still surprised, being used to seeing bondholders rank higher than equity holders who are to receive the value of the share offer.
The prices of the bonds UBS is buying back on Wednesday had also tumbled but partially recovered on Tuesday.
They rallied further following Wednesday’s announcement. The price of the March 2032 bond was up just under a point on the day as prices on both bonds rose near to the levels UBS is offering to pay bondholders, Tradeweb data showed.
“The issuer has decided to launch this exercise as a result of a prudent assessment of these recent developments and the issuer’s long-term commitment to its credit investors,” UBS said in its statement.
The buyback was “fair” given the market volatility since the bonds were sold, a banker involved with the sale of the bonds said, speaking on condition of anonymity.
UBS shares were last down 2.3 per cent at 18.97 Swiss francs ($21.05), having risen as much as 3.6 per cent.