HSBC Said to Offer Riskiest Bank Bonds as Brexit Concerns Recede

The Brexit Debate: What Happens if the U.K. Leaves the EU
  • Lender becomes first in U.K. to market AT1 notes this year
  • Sale comes about a month before referendum on leaving EU

HSBC Holdings Plc, the U.K.’s biggest lender, is selling the riskiest type of bank debt about a month before a referendum that could lead to the country leaving the European Union.

The bank is offering so-called additional Tier 1 notes in dollars, according to a person familiar with the matter, who isn’t authorized to speak publicly and asked not to be identified. The bonds can be converted to equity if a capital ratio falls below 7 percent, the person said.

HSBC is the first U.K. bank to offer AT1s this year, following a Europe-wide market shutdown and economic uncertainty ahead of the June 23 Brexit vote. Its decision to sell bonds now may reflect growing expectations that the U.K. will remain in the EU, as well as the London-based bank’s low reliance on the domestic market.

“It’s a more Asia and globally focused bank than other U.K. names, so investors think less about Brexit,” said Chris Telfer, a money manager at ECM Asset Management in London, which oversees about $9 billion. “It wouldn’t be advisable for Barclays to come to the market at the moment, for instance.”

An HSBC spokesperson couldn’t immediately comment on the bond offering. The lender sold $8 billion of senior debt last week as it works to meet global rules designed to boost the funds that banks can draw on in a crisis.

Brexit Expectations

Bookmakers increasingly expect U.K. voters to reject a Brexit, with William Hill Plc signaling an 85 percent chance that the nation will stay in the EU. Sterling has gained against the dollar and euro in the past two weeks.

HSBC Chairman Douglas Flint said last week that there are economic advantages to the U.K. remaining in the EU. He also said that the bank may move some staff to Paris if nation decides to quit the trading bloc.

Issuance in the $108 billion AT1 market is rebounding after an industrywide rout in February caused by concerns that low industry profits and capital levels could endanger coupon payments. HSBC Finance Director Iain Mackay said at the time that the market was “deeply dysfunctional.”

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