Asian bank shares fell on Monday after Credit Suisse wrote off $17 billion in bonds following its takeover by UBS, which raised concerns about similar debt and signaled new turmoil in European markets, FT writes, quoted by Ziarul Financial.
HSBC shares fell 7.1 percent in Hong Kong, while Standard Chartered lost 7.7 percent and Bank of East Asia fell 4 percent. Some bank bonds designed to absorb losses in the event of a bank failure have suffered steep declines.
Swiss regulator Finma on Sunday called for 16 billion Swiss francs ($17 billion) of Credit Suisse’s Additional Tier 1 (AT1) bonds, a type of bank debt designed to absorb losses during a crisis. to be reduced to zero as part of the bailout agreement with UBS.
Finma’s decision, taken amid a frenetic weekend of negotiations to negotiate a deal for Credit Suisse and prevent the crisis from spreading, meant that holders of the bank’s AT1 debt lost more than its shareholders and called into question the hierarchy receivables in the event of a bank bankruptcy. This was the largest write-down of AT1 debt to date.
“It’s a wake-up call for investors that AT1 bonds carry real risks of being called off in extreme scenarios, which is also the purpose of these bonds,” said Gary Ng, senior economist at Natixis in Hong Kong. “The move is likely to trigger some selling and a rebalancing of risks by bond investors and holders of wealth management products in Asia.”
DBS Group Holdings’ 3.3% dollar perpetual bonds fell as much as 2.6 cents to 90.7 cents. Hong Kong lender Bank of East Asia’s 5.825 percent dollar bond was down 8.5 cents at 81.7 cents, while Thailand’s Kasikornbank’s 4 percent dollar bond was down 4.5 cents, to 80.6 cents.
Hundreds of billions of dollars in AT1 bonds were issued after the 2008 financial crisis as part of an international regulatory move to transfer the risk of bank failure to bond investors exposed to downturns in the event of a crisis.
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