(Corrects typo in paragraph four)
By Aimee Donnellan
LONDON, Feb 6 (IFR) - Switzerland's UBS is preparing to sell
the first euro denominated contingent capital issue of 2014,
gauging how deep investor demand in Europe is for this type of
UBS, like most other banks, has favoured the dollar market
to sell its low-trigger contingent capital issues. This
transaction is its first in the single currency.
However, with issuance of new-style bank subordinated debt
expected to increase materially this year, borrowers have to
seek out new investors to sell these bonds.
According to Citigroup estimates, European banks could raise
as much as EUR20bn and EUR45bn in Additional Tier 1 and Tier 2
respectively in 2014.
Having posted better than expected results on Tuesday, the
Swiss bank begun marketing a 12-year non-call seven-year deal
which can be completely written off if the bank's Common Equity
Tier 1 (CET1) ratio falls below 5%. UBS's Common Equity Tier 1
ratio rose to 12.8% in the fourth quarter of 2013.
"We've seen a real growth in demand for euro CoCos in recent
weeks and wanted to diversify into a new market," said a DCM
banker. "At this level we're coming flat to where we would be
able to price a dollar deal but are benefiting from a lot of
real money interest from European accounts."
Barclays and Credit Suisse are the only two other banks to
have tapped the euro market with these new style instruments. A
EUR1.25bn low-trigger Tier 2 contingent capital deal sold by
Credit Suisse in September attracted EUR3.15bn of demand while a
EUR1bn Additional Tier 1 for Barclays priced in early December
attracted EUR12bn of orders.
SHOW OF STRENGTH
The timing of the transaction may raise a few eyebrows as
the ECB monthly meeting is looming later today. It is also the
first from a financial in the European market this week as
issuers have stayed on the sidelines because of volatile market
However UBS seems to have caught a rare break in a
tumultuous market as the cost of insuring subordinated debt has
fallen by 8bp to 143bp since yesterday's close (level taken from
Against this relatively supportive market backdrop, UBS
acting as global coordinator, bookrunners Deutsche Bank, RBS,
Commerzbank, Credit Agricole CIB, Santander GBM, BBVA, Lloyds,
UniCredit, VTB, Societe Generale CIB began testing investor
interest for the Tier 2 instrument at mid-swaps plus 345-350bp.
At this level, the bond is offering investors around a 10bp
premium over Credit Suisse's EUR1.25bn 5.75% low trigger total
write-off CoCo that was deemed to be the most relevant
comparable for pricing.
That bond priced at mid-swaps plus 400bp back in September
of last year and was bid at mid-swaps plus 327bp pre
announcement, according to a DCM banker.
UBS is more than half way to completing its low-trigger
contingent capital requirement before its 2019 deadline, having
already raised CHF5.5bn (USD6.08bn). It has still to raise
Bankers involved in the deal say they have already attracted
a lot of interest from investors that are likely to be buoyed by
the bank's better than expected results.
The Swiss bank said that it had benefited from a
"transformational" year that saw net profit for the quarter
reach at CHF917m (USD1.02bn) after it booked a CHF470m gain from
(Reporting by Aimee Donnellan, editing by Helene Durand, Sudip