Charles Jillings, CEO of Utilico, energized by strong economic momentum across Latin America. Watch the video here.
AT1's look to have bottomed out and now seem to be on the rise (famous last words!). The ivz AT1 is up 3.5% today following a slight rise yesterday and is now sitting comfortably over 3000, the highest it has been since March 20th. Hopefully it will see us back to nav's over 160 again.
Invesco came back to me and finally answered almost all of my queries, some in greater detail than I was expecting, so complements to them for being responsive.
I will not go through them all but if you wondered why the undistributed current year revenue dropped from approximately 4 to 3p after last weekend, then it is because the excess from last year has been transferred to the revenue reserve. Nice to know they are building a buffer and that we still have more than enough left to pay this quarters divi with spare to provide a good head start for the following quarters.
The new management team really do seem to have turned this around with a very clear focus on the core business.
The results for the full year look good and the team have a good grip on the finances.
I still think that it will need more clarity about the new winery (and its funding) before the shares really take off (planning meetings scheduled over the next couple of months) but even so I can see the potential for an upward trajectory from here.
I am also lookin forward to trying the 2022 vintage wines when they are released as they could be exceptionally good!
Well I have to say that Invesco were rather disappointing with providing responses to my requests for information. Whilst a couple of the points have been addressed with more general statements on their website (such as percent AT1 holdings), they failed to answer questions about call dates . I also questioned why the same fund manager adopted opposing strategies for their Credit Swiss holdings between the open and closed funds, with Bips increasing from the end of February and all of the other open funds decreasing.
What was odd was that they would not comment if they had increased or decreased any holding -despite having already published this exact information on the Invesco website!
Fortunately Twentyfour are much better at customer relations and have provided a good running commentary on their Insights page most of which has relevance to Bips, note, I pair TFIF (mainly ABS) with bips (HY) along with a smaller holding in smif (HY, ABS,+other).
Here are some recent comments that may be of interest.
'CoCo bonds suffered from the worst contagion we’ve seen since their inception back in 2013. Dispersion has been huge though with Swiss and low reset bonds lagging the recovery from intraday lows last Monday. Compared to the recent peak in early February, CoCo bonds are down anything from 3-4 points (for example HSBC’s 6 call 2023) to 30 points (such as DB’s 4.789 call 2025). A reasonable number of these bonds are trading at levels we saw briefly in March 2020 when fears of a very deep global recession took hold with non-performing loans (NPLs) spiking to GFC levels or higher. Others are trading at levels similar to those we had in late September/early October last year when, in the context of an expectation of a severe energy crunch in Europe, the ramifications of the UK’s mini budget added further pressure on European bank bonds as well as risk assets more generally.
At these levels the CoCo Index (excluding Credit Suisse bonds) trades at a weighted average price of close to 83 cents. Given that these bonds are perpetual with call schedules this translates into a majority of bonds being priced to perpetuity. In other words the yield to worst calculation equates the price of the bond with a perpetual stream of coupons and no principal payment, forever. The resulting weighted average yield to perpetuity at time of writing is close to 9%. Whereas if we price the bonds to their first call the resulting yield is approximately 11.5%. '
There is an article in the FT today. In this they state that $37b of AT1's issued globally have call dates for April. The information I had about $13b this year came from Blackrock but this was in reference to European banks (which is more relevant to SMIF). Given that the entire AT1 market is supposedly $260b, I do struggle with the $37b mentioned by the FT as it would imply that you would, on average, call the entire market in less than a year!
The most recent update on Twentyfour is worth a read, in they point out that even if the AT1's are never called then the return on a composite index is 9% , with calls it is around 11.5%.
Nav now heading back up and is 99.4p .
This has come through the turmoil of the banking upsets quite well with the nav only dropping about 1p. With the recent further 0.25% on base rates in the UK and 0.5% in the EU it has plenty of potential for returns provided the defaults do not ramp up too high.
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.
Another big step up on asx last night - should open over 21p
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 .