(Corrects in lede and headline to say that UBS bought back 6.1 bln Sfr of bonds (not 16 bln francs' worth)
ZURICH, Dec 17 (Reuters) - UBS AG said on Thursday it had bought back 6.1 billion francs ($6.1 bln) worth of senior, subordinated debt and covered bonds, after offering to buy back 16 billion francs' worth of debt in a cash tender, as it seeks to benefit from lower interest rates.
"This transaction is consistent with our proactive approach to optimizing the group's interest expense, while maintaining our strong liquidity, funding and capital position," Switzerland's biggest bank said in a statement.
UBS expects to record an expense of about 272 million Swiss francs in the fourth quarter of 2015 related to the transaction. It expects to recover the amount in just over 1-1/2 years primarily through reduction of future interest expenses from purchased bonds, the bank said.
The expense will be recognized as negative other income within Corporate Center - Group Asset and Liability Management and will be treated as an adjusting item in determining the group's adjusted operating profit before tax, UBS said.
The repurchase of the bonds is expected to have an immaterial effect on the CET1 ratio, UBS said, adding the transaction would reduce BIS Basel III phase-in total capital by about 658 million francs.
Some of the subordinated bonds repurchased are currently eligible as Tier 2 under the BIS Basel III phase-in rules, but will not be eligible for Tier 2 capital treatment on a fully-applied basis beginning in 2019 and are not expected to be eligible as loss absorbing capacity under the anticipated revisions to the Swiss "too-big-to-fail" regulation, UBS said. ($1 = 0.9952 Swiss francs) (Reporting by Silke Koltrowitz; Editing by Gopakumar Warrier)