KBW101, I am curious, if you sold out at 12p why have you spent a year (or more) almost solely posting on this board?
Normally when I sell out I just move on to what it is I am holding, not what I used to hold, the latter seems rather pointless and a waste of time.
AT1's under a bit more pressure today. Deutsche Bank(DB) is now in the spotlight. DB AT1's down about 4.5% today reversing most the gains from the past few days. BIPS holds/held around 1% in total in AT1's from DB. The AT1's of stronger banks such as Barclays are only off a tad. Hard to see that the EBA will let this go down the same route as CS or they will have both a major banking crisis and little chance of banks being able to raise capital via CoCo's again.
From what I can discern generally non financial HY has held up OKish over the past week . Outside the AT1's the main fallers seem to have been bonds from insurers, these have moved in tandem with those of the banks and probably accounts for most of the remaining decrease in nav.
Thanks. I appreciate it when others post useful info so it is nice to reciprocate when I can.
I do have quite a large holding in this so I have been trying to find out as much as I can. I am still waiting for them to clarify a few points still though.
Yesterdays closing nav was 160.3 so its still continuing to recover. quite nicely. The share price has typically been sitting a couple of pence above this so this should we should soon see it in the range 162-164.
At bit more clarification from Invesco. BIPS has around 30% in subordinate financials, of this around 20% is in AT1's. Although it is rather Bank specific these will be down around 10% since the highs in February so approximately 2% of the nav then add in the 0.65% write off in CS round it all up to 3%, so about 5p is off the nav specifically due to the banking/AT1 problems.
Barring the 0.65% this should hopefully unwind over time.
Further update yesterday on-
https://www.twentyfouram.com/insights
You can follow the AT1's (AT1 ticker) - this had about 7% CS at the end of Feb which needs to be taken into account. The etf obviously hides quite large company differences since the weekend with a better recovery of the strongest banks.
The amount of AT1's that banks hold as a percentage of their cet ratio also range from 28% UBS & Barclays to 13% Lloyd's & ING.
The next interesting development will be whether those that are up for being called are called on time(even though perpetual they are expected to be called periodically). I believe that there is around $13b worth this year but nothing for at least a couple of months which will give things time to settle.
Hats off to Twentyfour for keeping holders well informed, I also hold BIPS and Invesco have, in contrast, been far less forthcoming.
I have taken this from Twentyfours website - as they seem better at keeping their customers informed than Invesco!
'AT1s fell sharply on Monday morning by between 7-15 points with higher beta names and UBS underperforming. Nonetheless, the importance of the European and the UK’s regulatory rebuttal to the weekend’s proceedings became apparent as post their respective statements, a quick rebound took place and by the end of the session roughly half of the move down had been recovered. The positive momentum has continued through yesterday and this morning with some bank AT1 bonds now back to last Friday’s prices – i.e. recovering all of the post-Credit Suisse action, but still lower than pre the US regional bank led sell off.
To give a few examples, at time of writing BNP 7.375% and BARCLAYS 8.875% are two AT1 bonds to have recovered to Friday prices. Though it should be said that both bonds are still down over 10 points from their February highs and are yielding over 10% to call in sterling terms and around 10% even when priced to perpetuity'
Not sure about the BPN bond but I think that BIPS holds around 0.9% in the Barclays bond (hard to be sure without exact bond number).
Nav has come off its low of 157.5 back up to 159.1 (at close on the 21st).
It was interesting to note that they added to CS (doubled?) over the first two weeks in March in BIPS, but the same fund manager either held or reduced in their open ended fund(s), Why the different strategy?
They have increased repo borrowing by 1%, assumedly to take advantage of the price falls. Most AT1's are now paying double digit yields, so as long as the market settles, there are no more defaults and the bonds are called when expected (there are 'perpetual' but are still called), then I am quite happy taking a >7% divi whilst I wait for the nav to recover.
They already have almost 4p of undistributed income, so no problem covering the next 2.875 divi that they have just announced.
It is the benefit of the higher rates now available that the fund can bare the odd default with no impact upon payouts.
They have not specified exactly how much of the 30% of financial subordinates in the fund is in AT1's but I would guess a reasonable percentage.
There has been an rns by Twentyfour today about CS with the following that has cross relevance-
' The market for AT1s on Monday morning had been lower by 15-20pts, but recovered to be down by 3-7pts by close yesterday, depending on Issuer. With prices for AT1s another 3-5 points higher today, valuations seem to be stabilising.'
There is about $13b of AT1's coming up for calls this year although nothing for a couple of months. Hopefully the market will have had time to determine how they should be priced by then.
They had a 0.65% bond exposure to CS on the 16th (increased from 0.54% a couple of weeks earlier)- so about 1p off the nav assuming that it was in AT1's and not any other bond (why did they not specify?) . Interestingly Twentyfour select held CS bonds which were not written off , but then their parent company is Swiss and had read the small print!
rns not showing here-
'Re: Company update following Credit Suisse takeover
Markets were digesting the ramifications of the actions of the Swiss authorities on Sunday evening, as FINMA, the Swiss regulator, has overseen the takeover of Credit Suisse by UBS, which included a payment to equity holders, while AT1 debtholders are wiped out, which is unprecedented.
However, other regulators have been quick to highlight the differences in their regimes, with the ECB and BOE releasing statements already highlighting the seniority waterfall - and reaffirming that AT1s clearly rank ahead of equity holders. These statements have, in turn, helped to support the markets for European banks. The market for AT1s on Monday morning had been lower by 15-20pts, but recovered to be down by 3-7pts by close yesterday, depending on Issuer. With prices for AT1s another 3-5 points higher today, valuations seem to be stabilising.
The TwentyFour Select Monthly Income Fund Limited (LSE: SMIF) does have a small amount of exposure to Credit Suisse Senior Unsecured bonds, which have not been impacted by the changes, and did not hold any Credit Suisse AT1 bonds. Furthermore, the Fund does not hold debt from any other Swiss banks. The Fund does have exposure to other AT1s, and currently holds 25.3% in this asset class, with 8.2% exposure to other, non-AT1 bank debt (which includes the Credit Suisse Senior Unsecured bonds).
TwentyFour Asset Management LLP (the Portfolio Manager) believe the rationale for holding European and UK subordinated debt is sound and was re-endorsed by the Eurozone regulators yesterday, confirming that the seniority waterfall put equity holders behind debt holders. The comment from ECB President, Christine Lagarde, last night saying “Switzerland does not set standards in Europe”, was another strong statement about the difference in regulation in Europe.'
Last week they sold all of their Treasury stock in their absolute return fund and had (still are?) planned to reinvest in bank debt.
EBA have now come out with a statement about AT1's
'In particular, common equity instruments are the first ones to absorb losses, and only after their full use would Additional Tier One be required to be written down. This approach has been consistently applied in past cases and will continue to guide the actions of the SRB and ECB banking supervision in crisis interventions.'
CS AT1's, although not completely unique, are unusual that they can be written down to zero. It is more common that there is equity conversion although it is down to the details in the bond prospectus.
AT1 prices are likely to remain depressed for a while but it may not quite as bad as it first looks.
I am not sure that writing CS's AT1's to zero over equity was a great move.
AT1's are going to get hit which will affect the CET1 ratios. Going forward bond holders will want a larger coupon for AT!'s which will reduce the amount of cash the banks have .
Just because they take it does mean that they need it now. Lots of firms took up our governments loans during covid 'just in case'.
There was an interesting discussion on this on one of the corporate webinars this week. I think it almost entirely rolls back all of the QT that the Fed have done to date!
Hopefully this has now removed some of the uncertainty around the Terminex merger.
The management team at RTO can be relied upon to deliver, they showed this during covid and looked to have done the same with this takeover.
This statement also answers some of the questions over the valuation of the cartel cases (although a bit more granular detail would have been nice).
'The judgments on the British Telecom and Royal Mail cases were handed down on 7 February 2023. The Company's retained competition law case value experts (Fideres Partners LLP) have accordingly updated their valuation of Manolete's 22 cases and the Board is satisfied that, subject to audit, the current carrying value in the balance sheet of £13.2m is materially correct.'