As investors rushed to reprice the riskiness of bank debt after the Credit Suisse news highlighted the risks of investing in these securities, European bond prices and stocks fell. As European markets opened on Tuesday, HSBC Holding's 6% AT1 bond seemed to recover slightly to 93 cents a dollar, after losing more than 5 points in the previous session. European bank shares index fell more than 6% on Monday, before rebounding a bit. The selling extended to Asian banks, with Singapore bank UOB Group's 3.875% bond down 2 points at 95 cents to the dollar, and Thai bank Kasikornbank's 4% also down 4 points to 80 cents to a dollar. A senior fixed income trader for an asset manager in Asia said price swings were big and investors were struggling with executing trades.
"The liquidity issue is massive. We can't do what we expect to do, which is a very complicated situation," the trader said. "It's only the second day of the week. Where it is going, I don't know." Banking supervisors in the UK and eurozone tried to stop a rout in the market for convertible bank bonds, by stressing owners of such junior bank debt would only suffer losses after shareholders have been wiped out - unlike at Credit Suisse, whose main regulators are in Switzerland. That didn't really seem to assure investors. "If I had asked everyone a week ago they would have said this could never happen," said Jefferies banking analyst Brian Johnson in Sydney. "This remains a significant breakdown in how the credit stack works. "
Lawyers meanwhile are talking to a number of AT1 bond holders about possible legal action, law firm Quinn Emanuel Urquhart & Sullivan said on Monday. Credit Suisse's AT1 bond were marked down from 24 cents on Friday to 0.25 on Monday, and seemed stuck there on Tuesday.
UBS's 4.375% AT1 bond was quoted at 60 cents,
after it dropped heavily on Monday to 60 cents from 72.
ING's 5.75% bond fell 8 cents to 80 on Monday.
Spreads on European subordinated bank debt, as per Markit's
index , have widened to 396 basis points from 255 in
two weeks.
A London-listed exchange-traded fund which tracks banks' AT1
debt tumbled as much as 18% on Monday before
rebounding, and is still down 17% in two weeks.
"Some names are remain attractive. It's not the end of the AT1 in my opinion. The only thing is it's re-priced the whole space, and the space doesn't work the same or move the same," the fixed income trader said. Thomas Jacquot, head of research at fixed income broker FIIG in Sydney, also pointed to how the Credit Suisse AT1 structure was quite different. "It's a precedent in Switzerland. I suspect most people now are just looking at what else they have in Switzerland, but that's it," Jacquot said.
"You can't apply the Credit Suisse story to any other bank because none of these other instruments have got the same sort of provision and the regulators now have come out globally saying hey, as far as we're concerned equity is first in line."
(Reporting by Tom Westbrook and Rae Wee)
