Remember Credit Suisse's AT-1 Bonds Fiasco? Here's Why MUFG Reportedly Delayed Issuing These Instruments


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Mitsubishi UFJ Financial Group Inc (NYSE:MUFG) has reportedly pushed the issuance of additional tier-1 (AT1) bonds to mid-May or later from its earlier timeline of late April after Swiss regulator FINMA's earlier decision to write down over $17 billion worth of Credit Suisse Group AG's (NYSE:CS) AT-1 bonds spooked the market.

Mitsubishi UFJ decided on the postponement considering investor appetite and market conditions, the bank's spokesperson told Reuters. He declined to comment on the issue amount, the report said.

MUFG in a statement to Benzinga after the publication of this story said it had announced in early March that it would issue AT1 bond in or after late April, and it announced on Monday that it will change the schedule to in or after mid-May.

"The decision to change the schedule was made based on investor demand and market trends," it said.

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AT1 bonds are used to shore up a bank’s regulatory capital base and often carry a higher yield because of their risky nature. The bonds do not have a fixed tenor but usually have a Call option embedded that can be used by the issuer to withdraw the bonds from the market. These bonds can be converted into equity or written down if a lender's capital buffers are eroded beyond a certain point.

Unfavorable Conditions: At the time when the market was hit by the news regarding the writing down of Credit Suisse's AT-1 bonds, it was already known that fundraising via the instrument would become difficult for other lenders in the near future.

This is because when an instrument had a write-off, potential investors would ask for higher yields if at all they are willing to show interest in the investment.

However, with the banking crisis still far from being solved and Credit Suisse's AT-1 bonds being written down to zero, the instrument may still take some time to make a comeback.

Michael Ashley Schulman, partner and chief investment officer at Running Point Capital Advisors had earlier warned about the issue, according to a Reuters report. "It's going to make the AT1 bonds more expensive for all the other banks going forward because now everyone else is going to see this extra risk," he had said.

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Posted In: BondsMarketsAT-1 bondsFINMASwitzerland