Banks

After 18 months of difficult headlines Credit Suisse could ill afford more negative press, and we therefore welcomed its decision to refinance its 7.125% Additional Tier 1 (AT1) bond last week at its first call date.

The past couple of weeks have seen a flurry of new issuance as rates and credit markets have stabilised, and the European summer lull is approaching fast.

Despite the ECB's recent review bringing some previously debated points surrounding AT1s to the forefront, we believe any changes would create undesired, real-world consequences if implemented.

The reshaping of Deutsche Bank since the end of the global financial crisis has been one of the longest-running transformation stories in the banking sector.

European bank equity has been among the hardest hit sectors since Russia’s invasion of Ukraine, as fears of losses and a flight to quality have prompted investors to change positioning.

As 2021 wore on we became increasingly concerned that the disconnect between asset prices, economic fundamentals and monetary policy was becoming more acute.

As bondholders, we are comforted by all the banks passing such a severe test.

We agree that banks are sitting with an abundance of excess capital and will use some of it to repay shareholder support. However, capital buffers will remain elevated for some time to come,

Having been at the heart of the GFC and then contributing to the Eurozone sovereign crisis, we have long argued the European banking sector would have to prove its newfound resilience to investors by successfully navigating a challenging period.

What is most interesting about the CS situation though is that to us it illustrates the ability of large banks to bolster capital when such events occur, and the range of options they have to do it.

ESG conscious investors, ourselves included, of course, are applauding this brave decision by Barclays to put their conscience before profit, but they are not the first to do so.

The Bank of England have just added to the debate about how much of the recent surge in savings will be deployed in the form of consumption as we return to ‘normality’.