UBS Plans SRT Transaction Tied to $1 Billion of Corporate Loans

(Bloomberg) — UBS Group AG is sounding out investors for a potential significant risk transfer tied to a portfolio of corporate loans, according to people familiar with the matter, as the Swiss bank explores ways to mitigate strict capital requirements being imposed by its main regulator.

The Zurich-based lender is considering an SRT tied to $1 billion of loans, said the people, who asked not to be identified as the details are private. The SRT may be equivalent to about 12.5% of the reference portfolio, they added.

The potential transaction is in its early stages, so the terms and size could change, the people said. A representative for UBS declined to comment.

The lender has also been discussing a separate SRT deal with investors, tied to a portfolio of 2 billion francs ($2.5 billion) worth of loans, the people said. That may be issued through J-Elvetia, one of the vehicles through which Credit Suisse issued SRT notes before UBS took it over.

SRTs allow banks to insure loans against default. The transactions are frequently issued in the form of credit-linked notes to pension, sovereign wealth and hedge funds, allowing the issuer to unlock capital they would otherwise use to meet regulatory requirements.

UBS’s SRT plans follow the Swiss government proposing banking reforms that could add as much as $26 billion to its existing capital demands. The regulatory overhaul is aimed at preventing another crisis after Credit Suisse’s troubles.

The global SRT market is expected to expand 11% annually on average over the next two years, according to a Bloomberg Intelligence survey released in June. European lenders are the main driver, with those discussing or finalizing deals including Banco Santander SA, Banco BPM SpA and Deutsche Pfandbriefbank AG.

–With assistance from Myriam Balezou.

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