5/18/2023 0 Comments Stay afloat meaning![]() Standard Charted Chief Executive Bill Winters said the move had "profound" implications for global bank regulations.Īnalysts reckon investors will be much more cautious about buying AT1 bonds in the future, making it tougher for banks which need to raise money in bond markets to meet regulatory requirements.īid prices on AT1 bonds from banks, including Deutsche Bank, HSBC, UBS and BNP Paribas dropped this week, sending yields sharply higher, data from Tradeweb showed. The decision to write down Credit Suisse AT1 bonds to zero is viewed as negative for the AT1 bond market globally. WHAT DOES IT MEAN FOR THE BROADER MARKET? One bank adviser and a bond investor said the Swiss government's actions were legal since the type of AT1 bonds issued by Credit Suisse could be subject to a complete write- down.īut the price of other banks' AT1 bonds have dropped as investors have panicked, fearing their bonds, which were meant to provide more protection than shares, could face the same fate.Ĭredit Suisse's AT1 bondholders are seeking legal advice. A dispute over the write-off of around $1 billion of AT1 bonds issued by India's Yes Bank in March 2020 after the Reserve Bank of India initiated a restructuring of the lender is currently subject to court proceedings.įixed income investors were shocked by the write down of Credit Suisse's AT1 debt to zero. It is not the first time that the treatment of AT1 bonds in a bank overhaul has caused controversy. Hong Kong and Singapore's central banks said on Wednesday they would stick to the traditional hierarchy of creditor claims if a bank was to collapse in their jurisdictions. Under the rescue deal, they rank lower than shareholders in the bank, who can at least get UBS' takeover price of 0.76 Swiss francs ($0.8191) per share. In Switzerland, the bonds' terms state, however, that in a restructuring, the financial watchdog is under no obligation to adhere to the traditional capital structure, which is how bondholders lost out in the Credit Suisse situation.Ĭredit Suisse AT1 holders, therefore, are the only ones not to receive any kind of compensation. If a bank runs into trouble, bondholders will rank above shareholders in terms of getting their money back. They also pave the way for a "bail-in", or a way for banks to transfer risks to investors and away from taxpayers if they get into trouble.ĪT1s rank higher than shares in the capital structure of a bank. If AT1s are converted into equity, this supports a bank's balance sheet and helps it to stay afloat. They are the riskiest type of bond a bank can issue and so carry a higher coupon. ![]() They make up part of the capital cushion that regulators require banks to hold to provide support in times of market turmoil. They can be converted into equity or written off. Here are some of the implications of the Credit Suisse AT1 bond write-down.ĪT1 bonds - a $275 billion sector also known as "contingent convertibles" or "CoCo" bonds - act as shock absorbers if a bank's capital levels fall below a certain threshold. The news has hurt AT1 bonds issued by other European banks and they came under fresh selling pressure on Friday.
0 Comments
Leave a Reply. |