The $17 billion of AT1 bonds wiped out by a stroke of the legislative pen to effect the takeover of Credit Suisse by UBS, led to much hand-wringing in the financial markets. Now, a globally systemically important bank has issued a billion dollars worth of them.
A mere weeks after the market for contingent convertible bonds, «CoCo bonds», was declared for dead by some, Japan's Sumitomo Mitsui Financial Group (SMFG), one of around thirty systemically important banks globally, tapped the market for the instruments, according to a «Bloomberg» (behind paywall) report Wednesday.
SMFG sold 140 billion Japanese yen ($1 billion) of AT1 debt, the first major global bank to do so since the government-forced takeover of Credit Suisse by rival UBS.
More Issues Planned
The issue is also one of the largest in the corporate bond market this year, indicating demand for risker debt in Japan is alive and well. According to Bloomberg, Mitsubishi UFJ is also planning an AT1 sale as soon as mid-May to be conducted in two parts.
The Swiss financial regulator Finma, defended its decision to wipe off the value of Credit Suisse's CoCo bonds as part of the takeover, saying conditions were fulfilled allowing it to do so.
Created in the wake of the 2008 financial crisis, CoCo bonds are the riskiest debt that banks sell. They're designed to put bondholders on the hook by either facing losses or converting the bonds into equity if capital ratios fall below regulatory minimums. They can also be written down, as was the case with Finma and Credit Suisse, in the event a bank is seen as failing.
