NEW YORK – The bond market showed signs of stabilization and recovery as UBS successfully issued $3.5 billion in Additional Tier 1 (AT1) bonds last Wednesday. This issue constitutes an important step towards the normalization of the market after the upheavals caused by the collapse of Credit Suisse in March.
Strong demand for UBS’s AT1 bonds was evident, with the final price set at 9.25% for the five- and ten-year call bonds. Initially, pricing discussions suggested rates of 10% for five-year call bonds and 10.125% for ten-year call bonds. However, investor confidence, reinforced by the prospect of these bonds being converted into shares in the event of certain triggering events, allowed UBS to reduce the final yield.
Credit spreads are now close to levels seen before the collapse of Credit Suisse. This sentiment was echoed by Jakub Lichwa of TwentyFour Asset Management, who highlighted the unprecedented demand that led to a book size of $36 billion.
Investors were also reassured by UBS’s confirmation that these AT1 bonds would be convertible into shares in the event of a triggering event, pending shareholder approval. This feature is a typical safeguard mechanism of AT1 instruments designed to absorb losses and preserve a bank’s capital base.
The success of the bond issuance and the resulting strong demand were interpreted as positive indicators for the bond market as a whole. They suggest that investors are regaining confidence in the stability of the banking sector and are willing to invest in instruments that were previously under scrutiny due to Credit Suisse’s financial difficulties.
UBS, a leading player in the capital markets industry, maintained a steady performance with a few key metrics worth noting. According to real-time data from InvestingPro, UBS has a market capitalization of USD 78,099.92 million and trades at a low earnings multiple, with a P/E ratio of 2.45 as of Q3 2023. Adjusted P/E ratio for the last twelve months as well as the third quarter of 2023 amounts to 7.45.
According to our InvestingPro Advice, it is worth noting that despite some low gross profit margins, UBS has managed to maintain dividend payments for 12 consecutive years, a reassuring sign for investors. Additionally, the company’s shareholders have enjoyed high returns on their equity.
For those who would like more information, InvestPro offers a wealth of additional advice and data metrics for UBS and other companies.
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