Banks

There have been a number of recent articles in the mainstream press about the 10 year anniversary of the collapse of Lehman Brothers, with some saying familiar risks are emerging and questioning whether lessons have been learned.

UK specialist insurer Rothesay Life came to the market yesterday, the latest company to issue in the fledgling RT1 sector introduced by the regulator as Solvency II compliant capital.

Following on from the release of solid Q2 numbers, and no longer in a closed-period, Barclays were quickly out of the blocks and announced the issue of a new AT1 this morning; a $2bn transaction with initial price talk of 8%.

It’s been nearly five months since the Italian general elections, with the result and the process of forming a coalition government eventually leading to the steepest selloff in BTPs we’ve seen for a long time, and the spread to bunds touching levels not seen since 2013.

So far the US earnings season has been positive, with the major US banks being the outperformers to date – both Goldman Sachs and Bank of America strongly beat profit estimates and JP Morgan posted record Q2 profits.

Today sees the launch of the first dedicated Additional Tier 1 Exchange Traded Fund. As first mover, Invesco Powershares gets to claim the simplest ticker, AT1 LN.

For many years ABS has primarily been used as a funding tool for banks and other lenders.

We are currently of the view that the market panic generated by the plan published by the new Italian government is a bit excessive.

HSBC released its Q1-2018 results this morning which were a little underwhelming with bottom line profit before tax a touch below estimates (down 4% on Q1-17) and return on equity of 7.5% (compared to 8.0% in Q1-17), but that aside the numbers give investors little concern.

Yesterday the Bank of England released its quarterly Credit Conditions survey, which as our regular readers know, along with the Fed’s Loan Officer survey and the ECB’s Bank Lending Survey, we consider to be an important indicator on the health of the credit cycle. 

As we start the new year and approach the 5th anniversary since the issue of the first European Additional Tier 1 (AT1) bond (BBVA 9% Perp-18), it is a good time to re-assess the sector in the current market.

The magnitude of the strong beginning to the year has probably surprised even those who were forecasting a positive start to 2018.