Market environment. Another positive month for subordinated debts, despite record amounts of primary issues. Subordinated insurance debts performed well with a performance of +1.5% over the month of September, due to higher bond sensitivity than other subordinated debt sources, in a favorable rate environment. , notably with the start of the Fed’s monetary easing cycle.
Jérémie BoudinetHead of Financial and Subordinated Debt
Paul Gurzal,
Co-Head of Fixed Income
AT1s denominated in USD also outperformed thanks to the rally in US rates and ended the month up +1.6%, while AT1s denominated in EUR achieved a performance of +1%.
The month of September is historically very busy for the primary markets, and this back-to-school season was no exception. On AT1s, it was an absolute record for gross issues with EUR12.2bn issued over the month through 16 transactions (the previous record was EUR9.2bn, established in November 2023). Most issuers preferred to launch into the USD deposit, which benefited from a very large appetite from investors, including Crédit Agricole, Lloyds Banking Group, Nordea, Arion Banki, UBS, HSBC and BNP Paribas. It should be noted that AT1 issuers no longer include an initial call period of 6 months continuously, given the common market practice of making buyback offers ahead of the first call dates from now on. On the Corporate Hybrids side, the pool does not lack dynamism, with new issuers (the Belgian TMT Proximus and the Italian community services company SNAM) and several issues with a final maturity of 30 years, in accordance with the recent methodology of Moody’s. In the secondary market, some Corporate Hybrid issuers underperformed due to idiosyncratic issues, such as Volkswagen, Bayer or SES.
The Australian banking regulator, APRA, wants to remove bank AT1s from local balance sheets. Allegedly wishing to learn the lesson of the Credit Suisse episode and the inability of the AT1 to absorb losses in a “going concern” context (ie allowing the bank to survive alone while making the subordinated creditors absorb the losses), the The regulator proposes to replace Australian AT1s essentially with Tier 2 and a little hard capital (CET1). Australian AT1s have the particularity of being sold mainly to retail banking customers (53% according to APRA), which can complicate their treatment in a bank resolution context. The regulator therefore prefers to get rid of this layer of subordinated capital in favor of depreciable equity capital (Tier 2) which can also be held by retail customers. This proposal relaunches the debate on the structuring of AT1, but should not be emulated in other regions of the world, including Europe, where regulators and legislators do not plan to relaunch a legislative cycle around this question for now.
The main back-to-school saga concerns UniCredit and Commerzbank. The Italian bank did not long hide its intention to attempt a takeover bid for the German bank, with an offensive approach by having first taken a stake of around 9% in the capital of Commerzbank (including 4.5% put up for sale by the German State), then by declaring that they hold derivative instruments with a view to potentially holding 21%. These operations were poorly received by the German bank’s unions and by local political staff, with declarations that poorly conceal protectionism tinged with contempt. Commerzbank’s credit spreads rallied, while those of UniCredit remained relatively stable over the period. The battle is far from over and the outcome seems uncertain, given the political obstacles to any rapprochement.
Par Paul Gurzal, Co-Head of Fixed Income and Jérémie Boudinet,
Head of Financial and Subordinated Debt, Crédit Mutuel Asset Management
Disclamers :
This communication is intended for professional investors within the meaning of the MiFID 2 directive.
The information contained in this document is for information purposes only and does not constitute an offer or solicitation to invest, nor investment advice or a recommendation on specific investments. The elements of information, opinions and numerical data are considered to be founded or accurate on the day of their establishment according to the economic, financial and stock market context of the moment and reflect the feeling to date of the La Française Group on the markets and their developments. They have no contractual value, are subject to modification and may differ from the opinions of other management professionals. It is also recalled that past performance does not prejudge future performance and is not constant over time.
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