Bank turmoil eases in Asia
March 22, 2023 - Dollar-denominated Additional Tier-1 (AT1) bonds issued by Asia-Pacific banks have rebounded, reassuring investors unsure whether their money is safe following the collapse of Credit Suisse.
Of the 38 dollar-denominated perpetual bonds trading in Asia-Pacific as of lunchtime in Hong Kong on Wednesday (March 22, 2023), 31 recovered slightly, while seven were quoted lower, according to Bloomberg.
China’s Bank of Communications AT1 note rose 1.4 cents to 95.5 cents on the dollar -- its biggest gain since early 2020 -- while South Korea’s Kookmin Bank’s bond climbed 0.8 cents to 94.1 cents.
Among the bonds dropping were Hong Kong’s Nanyang Commercial Bank Ltd’s paper which slipped 0.4 cents to 94.5 cents, and Guangzhou Rural Commercial Bank Co’s note which lost 0.4 cents on the dollar.
AT1 notes, also called “contingent convertibles” or “CoCos”, are debt securities created after the 2008 financial crisis to make bondholders absorb losses to allow a bank to stay afloat.
Following the takeover of Credit Suisse by Swiss-based UBS Group, its AT1 notes worth SFr16 billion (US$17.3 billion) were written down to zero sparking the crisis.
“The government intervention was too severe and has destroyed the AT1 market,” Peter Ru, strategy leader at Shanghai-based Neuberger Berman, told the South China Morning Post.
“The government intervention was too severe and has destroyed the AT1 market.”
- Goldman flags opportunity to buy additional Tier 1 bonds as they climb in Asia (The Edge Markets)
- Banks’ Riskiest Bonds Sink as Credit Suisse Wipeout Jolts Market (Bloomberg)
- Asia investors ‘gobsmacked’ by $17bn Credit Suisse bond wipeout (Financial Times)
- Asia banks may face difficulty bolstering capital via AT1s (Reuters)
- Bank Turmoil Highlights New Zealand’s Lack of Deposit Insurance