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What will happen to share prices and bond returns if the climate warms by 1.5°C, 2°C, 3°C? You don’t know, and neither does anyone else. But these scenarios are probable. It’s time we worked it out — and a decision before the G20 next weekend could make a huge difference. -
Part of the selling point of covered bonds is that they are a relatively easy to understand, safe investment. But this has become less true over time, especially in conditional pass through structures. It's time for a more unified approach.
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It's been uncanny how all of Europe’s recently failing financial institutions have failed in just the right way to ensure the most favourable outcome for the competent authorities.
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When Banco Popular lost the market's confidence, it ran out of road. Realistic assumptions for recovery rates on bad assets plunged to super-conservative levels. Confidence is the greatest form of solvency, its withdrawal a precursor to insolvency.
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For every step forward that the Masala bond market takes, it goes two steps backwards, with the Reserve Bank of India recently putting up barriers to keep high yield issuers out of offshore rupees. Cutting off low grade Masala issuance isn’t the worst thing to come out of the central bank’s announcement — the rules could also stifle investment grade deals.
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Banco Popular Espanol’s covered bonds barely reacted to credit stress afflicting bonds further down its capital structure ahead of the Spanish lender’s resolution on Tuesday evening. This may have illustrated the effectiveness of the Covered Bond Purchase Programme (CBPP3) but also showed confidence in the asset class, the regulator and the Spanish banking system.
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Soon, banks will have more TLAC and MREL than equity. The new bond classes are a immensely important part of the financial structure of a bank, but the risks to investors aren’t yet clear. Just how will this alien new instrument class behave — or misbehave?
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As the UK Labour Party’s Jeremy Corbyn bounces in the polls, his party’s plans for the financial system owe much to the German model — and have similar weaknesses and strengths.
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There are few barriers and obvious incentives to entering the non-preferred senior market. Smaller European banks should join the party.
