(Feb 6): UBS Group AG plans to sell billions more in additional Tier 1 bonds over the next few years after a blockbuster deal last year that heralded a revival for the market for risky bank debt.

The Swiss lender’s 2024 funding plan envisages issuing up to US$2 billion (RM9.53 billion) equivalent of AT1s, according to its fourth-quarter investor presentation. Over the longer term, UBS plans to beef up its capital ratio while keeping its equity layer stable, “reflecting gradual build of AT1”, the statement said.

Lenders rely on AT1 notes — introduced in the aftermath of the global financial crisis — as a crucial capital buffer. The market was rocked to its core in March last year, when about US$17 billion of the securities were wiped out as part of UBS’ takeover of Credit Suisse Group AG. But high demand for sales of the securities by UBS and Barclays plc late last year marked a recovery, and reassured banks with AT1s that have first call dates this year.

UBS aims to keep its common equity Tier 1 ratio at around 14%, while increasing its total going concern capital ratio to about 18% of risk-weighted assets by 2029, from 17% currently. It also wants to save as much as US$1 billion from the cost of funding itself with measures like reducing how much it raises in debt that can be bailed in.

“This implies AT1 issuances of several billions over the next years, assuming no changes in regulatory requirements,” said Ugo Lagrotta, a treasury asset and liability management adviser who previously worked at the Swiss lender. “AT1 issuance remains one of the most expensive sources of capital, and may impact the ambitious funding benefits target.”

AT1 bonds — also known as contingent convertibles — help banks comply with core capital requirements without relying solely on more expensive equity. The bonds are perpetual, but investors typically expect banks to call them at the earliest opportunity unless refinancing costs are punitive.

A UBS representative said the bank does not comment on its funding plans.

UBS last sold two AT1 tranches in November last year, drawing roughly 10 times the bids for the debt on offer. Both are currently indicated several points above their face value on the secondary market, based on data compiled by Bloomberg.

The bank also reported results on Tuesday. It plans to resume share buy-backs this year, vowing to hand as much as US$1 billion to shareholders in the second half, as it seeks to move beyond the integration of Credit Suisse.