UBS’s $2 Billion of Contingent Capital Notes Tumble After Sale
February 19, 2012, 8:43 PM ESTBy Ben Martin
Feb. 17 (Bloomberg) -- UBS AG’s $2 billion of contingent capital notes, which help meet regulator demands that lenders strengthen themselves against losses, tumbled since Switzerland’s biggest bank sold the notes two days ago.
The 10-year securities, priced at par to yield 7.25 percent, are quoted at 98.25 cents on the dollar, according to Royal Bank of Scotland Group Plc prices on Bloomberg. The bonds will be written off should the lender’s core Tier 1 capital fall below 5 percent, or the bank faces a bailout.
UBS followed Credit Suisse Group AG and Rabobank Groep NV in selling contingent securities which inflict losses on investors when capital buffers weaken. The Zurich-based bank issued the notes on the day Moody’s Investors Service said it may cut the lender’s credit rating by as many as three levels.
“They were priced for retail, rather than the institutional market where most investors seem to have thought them very tight,” said John Raymond, an analyst at research firm CreditSights Inc. in London. “It seems to be partly because of the big Moody’s review.”
The ratings firm is reviewing 17 banks and securities firms which have global capital markets operations. Capital markets businesses “are confronting evolving challenges, such as more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions,” Moody’s said.
UBS spokeswoman Stephanie Aneto declined to comment on the performance of the securities.
--With assistance from John Glover in London. Editors: Michael Shanahan, Andrew Reierson
To contact the reporter on this story: Ben Martin in London at bmartin38@bloomberg.net
To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net
