Switzerland's largest bank UBS AG was set to acquire its outstanding bonds back worth up to EUR1.75 billion or USD2.4 billion as the bank intends to shrink its balance sheet and reduce interest costs. The bank's tender offer will be applicable to five subordinated bonds in currencies Swiss francs, euros or pounds and six senior unsecured bonds in in currencies Italian lira, pounds, francs or euros, said UB in an emailed statement sent today. The Zurich-based bank's cash offer will run until December 13.
Located in Basel and Zurich, UBS provides services in investment banking, asset management, and wealth management services for various institutional, private and corporate clients around the world. The bank was a product of a consolidation of Union Bank of Switzerland and Swiss Bank Corporation in 1998. UBS has USD1,705 billion in assets under management for 2013, which is a 9.7% from the year before, according to the Scorpio Partnership Global Private Banking Benchmark 2013.
Earlier this year, the bank purchased 14 senior unsecured bonds worth CHF5.1 billion or USD5.6 billion to reduce costs in funding. UBS said its buyback of its tier 2 capital bonds will not affect its capital according to Basel III rules.
"The transaction is consistent with our proactive approach to reducing our balance sheet and future interest expense while maintaining our strong liquidity, funding and capital position," UBS clarified in the statement.
According to UBS, it is expecting to incur a minimum loss from its bond buyback transaction, and will not have a significant effect on its common equity ratio. UBS also disclosed that the cost would be recovered by a reduction of its future interest expense. It will however, the bank said, lower its capital ratio by 0.2% to 0.5% as current rules will count the subordinated bonds towards its capital. UBS' current capital ratio as of the end of September was 21.8%.
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