UniCredit Offers to Repurchase Bonds Amid New Capital Rules

  • Bank plans to buy back up to 700 million euros of junior notes
  • Deal may save about 40 million euros in interest payments

UniCredit SpA offered to buy back subordinated bonds for the second time this year as it seeks to navigate regulatory changes and support capital levels.

Italy’s biggest bank will repurchase up to 700 million euros ($793 million) of additional Tier 1 and Tier 2 bonds maturing from 2018 to 2021, according to a statement on Tuesday. Its 1 billion euros of 6.75 percent AT1 notes rose 1.5 cents on the euro to about 82 cents after the announcement.

Banks are buying back bonds amid new rules that will disqualify some debt from counting toward regulatory capital requirements and to help keep Common Equity Tier 1 ratios above triggers that would stop interest payments on the riskiest securities. UniCredit, which is among the least capitalized European lenders, bought back 1 billion euros of notes from retail investors in February.

“The purpose of the invitations is to support the UniCredit Group in efficiently managing the regulatory amortization profile,” the bank said in the statement. “At the same time the related profit generation will contribute to an increase in CET1 and interest expenditure will be reduced in future years.”

Interest Savings

UniCredit said it will buy as much as 325 euros of Tier 1 notes and up to 375 euros of Tier 2 notes. It may save up to 40 million euros in interest payments on bonds it buys back and a smaller amount from canceling interest-rate swaps linked to coupons, according to a bank spokeswoman.

UniCredit’s CET1 ratio fell to 10.5 percent at the end of March from 10.7 percent three months earlier and may fall by a further 0.2 percentage points if its 1 billion-euro stake in Italy’s government-orchestrated bank-rescue fund is fully invested, Chief Executive Officer Federico Ghizzoni said last week. The Atlante fund was created last month to help the country’s troubled lenders.

UniCredit’s offer period will run until May 24. The largest issue in the buyback is 750 million euros of notes maturing in April 2021, according to the statement. The bonds rose about 2 cents on the euro to 113 cents after the announcement, Bloomberg data show.

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