LONDON, Oct 20 (IFR) - Fitch Ratings has launched an interactive tool to help investors better value Additional Tier 1 and Tier 2 contingent capital bonds under various hypothetical scenarios following regulatory criticism that the instruments are too complex.
The AT1 Tracker Tool will allow users to perform “what-if” analyses relating to coupon omission and write-down trigger points by adjusting various parameters. It will also allow them to vary risk-weighted asset and assets ratio, which might be appropriate if users have concerns about how a selected issuer calculates its risk-weighted assets.
These securities often have temporary calls, variable triggers, conversion mechanisms, contingent clauses and covenants - features which the European Banking Authority recently warned brought excessive complexity to the asset class.
Banks issued around US$56bn of AT1 capital during the first nine months of 2014, according to Fitch, meaning that there is a huge pool of investors who may stand to gain from using the tool.
According to the ratings agency, users will also be able to examine the key features of individual instruments, as well as compare the non-performance, write-down or conversion buffers of up to five different issuers.
The tool will be updated regularly to include newly-issued bonds and new issuer financial data used to assess trigger points. It currently covers over US$90bn of AT1 instruments.
Fitch has also created a “Banks AT1 Tracker” dashboard summarising key themes relevant to the asset class, which aims to help provide comprehensive data and analytics across this market.
“We believe the tool will add huge value and deeper analysis to existing research,” said David Weinfurter, global head of financial institutions at Fitch Ratings. “It offers a deeper insight into this market with a level of flexibility and tailorability that will bring more clarity and transparency to this complex and evolving asset class.”
Some bankers have warned that AT1 issuance could soon slow down because of new rules that require new deals to be approved by the European Central Bank as well as national supervisors.
Recent volatility has deterred many banks from braving the market with new issues, with last week’s deal from the Bank of China the only one to buck this trend. Other recent deals from Nordea, Santander and UniCredit saw muted interest from investors.
The Bank of America Merrill Lynch CoCo index hit a high of 108.052 in June 10 fell to 103.838 on October 16.
Yet despite the current challenges, Fitch is confident that the regulatory impetus on banks to shore up capital will support future issuance.
“AT1s are an instrument class of great interest to market participants and given the longer-term regulatory support for this asset class, we expect global issuance volumes to increase significantly,” Weinfurter said. (Reporting By Alice Gledhill; Editing by Alex Chambers and Gareth Gore.)