UBS to buy back pre-takeover bonds

ZURICH: In a bid to reassure investors, UBS announced on Wednesday it will buy back bail-in bonds issued shortly before taking over its rival Credit Suisse.

UBS, Switzerland’s biggest bank, issued bail-in bonds on Friday, two days before taking over the country’s stricken second-largest bank under strong pressure from the Swiss authorities.

Bail-in bonds are financial instruments that banks may unilaterally convert into equity in times of crisis to absorb losses.

The two issues, worth a total of 2.75 billion euros ($3 billion), coincided with another sharp drop in Credit Suisse’s shares, which prompted the Swiss government, central bank and financial regulator to open emergency negotiations on a UBS takeover.

UBS “invites the holders… to tender their notes for cash,” it said, at their respective re-offer price “in light of the exceptional corporate actions” announced on Sunday, it said in a statement.

“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 agreed to buy Credit Suisse for 3 billion Swiss francs ($3.25 billion) on Sunday after urgent talks at the Swiss finance ministry.

Among the measures intended to facilitate this takeover, the Swiss authorities wiped out 16 billion francs of Credit Suisse bail-in bonds, which triggered shocks on the bond markets as they would normally receive compensation ahead of shareholders, who are receiving some money back.

UBS said the buyback offer is open until April 4.

Analysts at the Dutch bank ING said: “We see the tender offer of UBS for the two senior deals mainly as the bank seeking to [assure] investors that it will continue its more creditor-friendly policies.

“Since launch, the notes have substantially underperformed and particularly so after the announcement of the forced merger with Credit Suisse.”