AT1 reaching maturity at just the right time
GlobalCapital, is part of the Delinian Group, DELINIAN (GLOBALCAPITAL) LIMITED, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 15236213
Copyright © DELINIAN (GLOBALCAPITAL) LIMITED and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement
FIGBank Capital

AT1 reaching maturity at just the right time

The AT1 market has come of age. In just over two years there is no longer a need for arduous investor education and perfect markets to sell the riskiest bank debt on offer.

Three European banks have proved just that in the last two weeks by taking orders just shy of $40bn to sell $6.35bn of additional tier one (AT1) debt in four sessions. They are soon to be followed by BNP Paribas, which announced its first dollar denominated offering on Monday.

As UBS, Barclays and RBS have shown, AT1 is now altogether a more nimble product for issuing banks, a far cry from the clunky beast that was first issued by BBVA in April 2013.

Barclays, for example, announced its trade on August 3, took investor calls and opened books the next day.

This bodes well for the remaining €42bn of additional tier one debt Morgan Stanley analysts are still expecting banks to issue before year end, despite a slow start to the year for the market. With many banks ahead of their overall funding plans for 2015, the second half may be a good time for them to make more progress on their capital building.

Not only was the recent run of AT1 sold in what is traditionally the start of the holiday period for European investors, but it follows a long period of extreme volatility in the market related first to the back-up in Bund yields and then to Greece's negotiations with the EU. 

While the market has certainly improved since early July when the Markit iTraxx Europe subordinated financial index shot up to 195bp — it closed at 153bp on Monday — the period has not been without its casualties.

On July 30, the day before UBS reopened the AT1 market with a $1.5bn perpetual non-call 10 offering, Banco Sabadell was forced to pull a four year bullet, proving that the wider FIG market was not in an easy, catch-all mood.

Then, on the same day that Barclays printed a £1bn perp non-call seven, Sainsbury’s Bank decided against pursuing a sterling tier two print, saying it had other options available.

That this debt been sold in what is perceived as both a quiet and a difficult period in the market points to the level of comfort investors now have with the product.

In addition, the recent run of deals attest that investors no longer feel the need for a standardised product, and hardly blink at the variety of call dates and triggers on offer. That is fortunate, because the standardisation horse bolted long ago.

When BBVA sold the first ever CRD IV compliant AT1 in April 2013, investors were dismayed at the complexity of the deal, which came with a truckload of triggers.

Of course part of the appeal of AT1 debt is driven by fundamental factors that have little to do with the product itself. Investors have very few opportunities to buy products that offer any yield, particularly as peripheral and second tier core banks are so tightly valued.  

But this is not to take away from the efforts of banks to improve their capital positions and transparency and educate investors, and nor should it take away the work investors in turn have done to familiarise themselves with the product.

Two years ago you needed a three week roadshow and the stars aligned to launch an AT1. Now all it requires for many banks is a few phone calls.

Gift this article