Fitch: Recent AT1 Issuance Suggest Demand Set to Remain Strong
In its AT1 Tracker 2Q15 Update, Fitch says banks globally issued just under USD11bn AT1 bonds, the weakest quarterly issuance since 4Q13. Unfavourable market conditions in the quarter also meant that issuers were typically either large, established issuers or small banks issuing to local investors. Second-tier banks, which had issued sizeable volumes in 1Q15 and 4Q14, were virtually absent. At end-2Q15, capital instruments with numerical write-down or conversion triggers included in the Fitch AT1 Tracker amounted to USD177bn.
Since early July, AT1 issue volumes have picked up, reflecting subsiding volatility and narrowing credit spreads, but issuance remains limited to established names (Barclays, UBS) or well-known new entrants (BNP, RBS). We expect strong issuance volumes for the remainder of the year, driven by continued regulatory support for the asset class as well as many banks being ahead of their senior debt funding plans, which gives them scope to focus on subordinated and AT1 issuance. We expect AT1s included in our Tracker to exceed USD200bn by end-2015.
Overall coupon omission and write-down/conversion risk in the AT1 market, as measured by our Trigger Distance Average (TDA), increased marginally by 20bps to 667bps at end-2Q15. This was largely the result of above-average volumes of 7% trigger AT1 bonds being issued during the quarter (e.g. by Standard Chartered and ING Group). In absolute terms (i.e. measured in US dollars), the Fitch TDA dropped by around USD0.8bn to USD38.8bn, indicating marginally higher write-down or conversion risk for the asset class as a whole.
The Banks AT1 Tracker dashboard as well as the AT1 Tracker Tool can be found on www.fitchratings.com. The updated versions include rated and unrated AT1 and other capital-trigger bonds issued up to end-2Q15. The AT1 Tracker Tool also includes end-1Q15 financial data on AT1 issuers, which allows users to assess the absolute and relative coupon risk of AT1 instruments and the write-down/conversion risk of AT1 and Tier 2 contingent capital instruments. The next instalment of the AT1 Tracker will be published in 4Q15 including issuance up to end-3Q15.