Cat XL
Shizuka Minamoto
Sempre da FTAlphaville, sul diverso approccio delle banche, a distanza di qualche anno, sulla redemption dei Tier 1:
Another bank non-call, an entirely new reaction
Posted by Tracy Alloway on Feb 17 12:15.
Cast your minds back to the (heady) final days of 2008 — when Deutsche Bank rattled the bond market by opting not to call one of its Tier 1 subordinated bonds.
The decision spooked bank debt investors. These kinds of callable bonds had usually always been called at par, at the first available date. Deutsche said it didn’t want to call because it would be more economic not to. Investors accused the German bank of “narrow financial logic” and threatened never to invest in their bonds again.
We bring it up because the spectre of ‘non-calls’ seems to be out haunting the European market yet again. Italian bank Monte dei Paschi di Sienna chose not call two of its Tier 1 bonds, or €430m worth, that were callable in February and March.
This time, however, investors seem much more resigned to these kind of non-call events. Rather than accusing Monte of “storming … one of the last bastions of presumed behaviour in the credit markets” (an accusation that was lobbed at Deutsche back in 2008) we’re seeing some accolades for the bank’s reasoning.
The below from Illiquidx:
Weakness in bank capitalisation has put a focus on a new development in bank Tier 1 paper: the call feature. Traditionally, it was market-wide convention that a bank would always call its Tier 1 at the expected call date, no matter whether economic conditions would suggest differently. The widely believed reason for a Tier 1 bond to be called, no matter what, was that if the bank did not, it would not be able to come back to market issuing Tier 1 or other callable capital ever again. When not called, a Tier 1 bond becomes perpetual, at the closest level to equity, and the last real difference between the two is a regular (and higher than previously) coupon versus an uncertain dividend. This traditional view of the certainty of a Tier 1 being called was supported by the fact that there were only very few occurrences of non-call (e.g. a European bank in the early 1990s, where the non-call situation was rectified in a matter of hours, and eventually the bond was called).
The view is set to change [with the Monte dei Paschi non-call] This occurrence is testimony to a new, more logical trend: economically rational decisions should prevail over relying on intangible or difficult to value features. Investors should expect that not all their Tier 1s would be called, given the regulatory uncertainties and generally difficulties and cost of refinancing on the wholesale markets. It is unlikely that investors would ‘enjoy’ the higher yield, given that the bank increases its interest servicing cost by having the bond outstanding and in a weak economic environment this could be a downward spiral. But leaving the existing Tier 1 outstanding could also be a rational trade-off to issuing a new one on the market at higher levels, and affording more decision-making time.
The currently high financing cost of new subordinated debt for banks and heavy regulatory pressures on bank capitalisation, specifically what proportion of capital can be accounted for by Tier 1 and what instruments will be eligible as Tier 1 under the latest Basel III rules, would increase the volatility and uncertainty of the Tier 1 asset class. This remains a hard time for banks, and preserving their reputation would be aided precisely by taking those economically rational decisions including a non-call and designing an optimal and sustainable capital structure.
Quite a step-change from the Deutsche reaction just over two years ago, then!
Below are some more ‘Tier 1 axes of interest’ to watch out for, from Illiquidx:
DB 5.33 49 (09/19/13) 90.25 – 90.50
BACR 4.875 49 (12/15/14) 84.75 – 85.00
UBS 4.28 49 (04/15/15) 88.50 – 89.00
UCGIM 4.028 49 (10/27/15) 77.00 – 77.50
ISPIM 9.5 49 (06/01/16) 97.00 – 97.50
RZB 5.169 49 (05/16/16) 77.00 – 78.00
DANBNK 4.878 49 (05/15/17) 92.50 – 93.00
ISPIM 8.047 49 (06/20/18) 95.25 – 95.75
ISPIM 8.375 49 (10/14/19) 97.25 – 97.50
BACR 4.75 49 (03/15/20) 69.00 – 69.00
Il FT che si mette a citare Illiquidix...come siamo caduti in basso mio Dio
......Mi sembra
