UBS Shelves Risk Transfer Deal Tied to $2.5 Billion of Loans

(Bloomberg) — UBS Group AG has shelved a significant risk transfer transaction tied to 2 billion francs ($2.5 billion) of loans, according to people familiar with the matter.

Zurich-based UBS has spoken with investors about a deal for at least two months, said the people, who asked not to be identified discussing private matters.

The securities would have been issued through J-Elvetia, a vehicle UBS inherited when it took over Credit Suisse Group AG, people familiar with the matter said in August.

A spokesperson for UBS declined to comment.

SRTs allow banks to effectively insure loans against default by selling credit-linked notes to pensions, sovereign wealth managers and hedge funds. That frees up capital that would’ve been needed to meet regulatory requirements. Typically, a lender obtains default protection for between 5% and 15% of the loan’s value.

The Swiss government has proposed banking reforms that could add as much as $26 billion to UBS’ existing capital requirements. The proposed rules — aimed at preventing another crisis like the collapse of Credit Suisse — could stifle the bank’s profit and growth prospects.

Separately, the lender is sounding out investors for a potential SRT tied to $1 billion of corporate loans, other people familiar with the matter said.

The global SRT market is expected to grow 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 Banco Santander SA, Banco BPM SpA and Deutsche Pfandbriefbank AG among those discussing or finalizing deals.

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