An AT1 Sale Worth $1 Billion Brings in Nearly $12 Billion for UBS

A day after announcing intentions to sell billions more of the riskier assets in the next years, UBS Group AG offered dollar-denominated Additional Tier 1 notes.

An anonymous source familiar with the matter said that the Swiss lender had priced $1 billion worth of callable securities in April 2031 at a yield of 7.75%. The source wished to remain anonymous due to the sensitive nature of the topic. It follows UBS's November market comeback, when the firm secured $36 billion in orders for $3.5 billion in AT1s across two tranches, marking a market resurgence after a turbulent year.

More than $11.7 billion in investor orders were received in Wednesday's auction, according to a different source familiar with the issue. This new offer follows the bank's recent announcement that it intends to raise $2 billion in highly subordinated debt this year and continue to lift a capital buffer until 2029 through the "gradual build of AT1."

Additional Tier 1 issuance of comparable amounts is planned by other European banks this year. The planned issuance of €2.5 billion ($2.7 billion) by BNP Paribas SA and €1 billion to €2 billion of AT1 and Tier 2 by Deutsche Bank are also underway.

According to multiple bank earnings and fixed income presentations obtained by Bloomberg, Santander has already raised €3.8 billion, including prefunding last year, and plans to issue a hybrid bond worth €4 billion to €5 billion in 2024.

This week has been a busy one for the market for new AT1s among European banks. Bloomberg reports that among the leading financial institutions, ING Groep NV of the Netherlands, raised over $1 billion, while Jyske Bank A/S of Denmark and Swedbank AB of Sweden sold additional debt in euros and dollars, respectively.

In order to protect bondholders from bearing the brunt of bank failures without putting taxpayers in a bind, contingent convertible bonds (AT1) were established in the wake of the financial crisis. After UBS wiped away $17 billion worth of Credit Suisse notes as part of the lender's merger in March, they had their worst trading day ever.

Spreads on a Bloomberg multi-currency index are close to their lowest point since February of last year, suggesting that the market has subsequently recovered.