Preferreds AT1 bonds Get Burned in Historic Rout



Preferreds, a kind of hybrid security, are popular with banks because they help meet capital requirements without diluting shareholders.

First Republic Bank’s preferreds were effectively wiped out after the failed lender was bought by JPMorgan

Preferreds rank above common equity, but below all types of debt and pay high dividends. The securities are typically perpetual, but banks often redeem them early if they can replace them at cheaper rates. 

Preferred shares are the US equivalent of European banks’ additional tier 1 bonds, which drew attention recently after a historic $17 billion wipeout of Credit Suisse Group AG notes. 

Unlike preferreds, AT1s have more complex mechanisms to force losses on bondholders at times of stress, including conversion into common equity or loss of principal.

Bloomberg 7 May 2023

https://www.bloomberg.com/news/articles/2023-05-07/preferreds-get-burned-in-historic-rout-spreading-from-banks


Risky Credit Suisse Bond Wipeout Upends $275 Billion Market

Holders of AT1 bonds get nothing as shareholders get billions

https://englundmacro.blogspot.com/2023/03/huvudscenariot-ar-att-en-systemkris.html


The value of additional tier 1 (AT1) bonds issued by major banks declined dramatically 

https://englundmacro.blogspot.com/2022/12/feds-top-banking-regulator-signals.html


Basel

https://www.internetional.se/basel.htm


Mark-to-Market

https://www.internetional.se/marktomarket.htm


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