UBS Sells Largest Structured Note in 13 Months as Issuance Slows
The $40.8 million of six-month notes tied to Venezuelan sovereign debt carried a two percent coupon, according to data compiled by Bloomberg. The Zurich-based lender, which is eliminating 10,000 jobs and most of its debt-trading businesses, issued $167.9 million of structured notes this year, a 95 percent drop from the same period in 2012.
The cost of insuring UBS’s debt against losses fell 9 percent this year to 85 basis points, the lowest among Europe’s 10 largest banks by market capitalization, Bloomberg data show. The pricing on the bank’s credit default swaps has affected demand for its securities, according to Russell Catley, co-founder of London-based Catley Lakeman Securities, which advises on structured products.
“If investors are chasing the highest coupon, they are likely to get that from banks with wider credit spreads,” said Catley. “UBS’s tighter spreads could be working against it, as is often the case with the highest quality banks.”
Buyers of structured notes bear both the risk of the underlying assets and the bank selling the securities, so notes from riskier issuers tend to generate higher returns.
UBS is among lenders shifting sales of structured notes onto off-balance sheet issuing vehicles to meet stricter capital rules, selling $477.9 million through the entities this year, Bloomberg data show.
Structured notes package debt with derivatives to offer customized bets to investors while earning fees and raising money. Derivatives are contracts whose value is derived from stocks, bonds, currencies and commodities.
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