Rapporto pubblicato da Barclays
Interessante ¡¡¡¡¡¡
Front page of today's FT has raised some concerns about the future of Tier 1 space given the agreement reached over the weekend by Basel Committee to strengthen the regulation of the banking sector by:
* Raising the quality, consistency, and transparency of Tier 1 capital base, with the predominant form being common shares and retained earnings.
* Introducing an internationally harmonised/accounting adjusted leverage ratio
* Introducing a minimum global standard for funding liquidity
* Introducing countercyclical buffers above the minimum requirement levels
Furthermore, in order to guide supervisors during this transition phase, the following principles were also endorsed:
* Banks to engage in capital conservation measures, ie limit excessive dividend payments, share buybacks and compensation
* Compensation linked to prudent risk-taking / long-term sustainable performance
* Raising level and quality of capital whilst promoting stability of banking system and broader economy
To this effect, the FT alludes to the fact that European banks have higher reliance on hybrid instruments than US counterparts, that investor confidence in the sub-space has been "shaken", and that there is uncertainty over the speed and degree of the shift away from hybrid capital.
That said, the concrete measures, ie putting flesh on bones, from this latest Basel Committee agreement will only come out by the end of the year, with implementation aimed gradually from the end of next year; watering down these proposals could still materialise.
To this effect, it is in our view noteworthy to examine the current state of leverage across leading European banks since 2004 (chart enclosed).
1 - Assets / equity multiple has reduced significantly to c25x over the past 2 quarters and is now close to the Q4 06 lows
2 - Adjusted assets (netting derivs and repos to make IFRS a bit more comparable to US GAAP) / equity multiple is at the lowest level it has ever been over the past 4.5yrs @ 21x
3 - Core Tier 1 ratio, ie Tier 1 capital excluding hybrids, is the highest it has ever been over the past 4.5 yrs @ 7.5%
4 - Tier 1 leverage, ie the weight of hybrids in the capital base, has widened from 20% at end-04 to 25% in Q2 09 though it has reduced from c28% at end-08
So apart from the leverage trend, European banks seem to have already taken measures themselves to address some of the issues that have dogged the sector over the past 18months. Interestingly, the Tier 1 leverage of European banks ex-UK is back to its historic average of 20% and supports recent media article (Sunday Telegraph) that LLOY might be looking to convert some of its £7bn preference shares into common equity a la Citigroup.
Also, it is important to highlight that there have been 3 Tier 1s issued recently - SOCGEN 9.375%, STANLN 9.5%, and DB 9.5%. With the exception of the latter (which is a NC5.5 FIXED/FIXED) the others have significant step-ups at their 10yr call date points, implying there is a strong incentive for the banks to execute the option. In our view, it is difficult to envisage the regulators allowing these banks to issue such structures if the end-game was to make these securities perpetual and loss-absorbing.
As investors hunt for yield in an environment where financial strain has eased, their appetite for Tier 1s has been reawakened. This explains why generally speaking Tier 1 securities today have fully retraced their price action over the past year and YTPs are in many instances in high single digits. In our view, the Tier 1 market is here to stay; with Tier 2 capital generally losing importance with regulators, having just financial senior debt outstanding is a scenario that not even the most conservative of regulators would want to embrace.
