Banks Should Keep It Simple With Bail-In Debt, Poll SaysJohn Glover
Banks shouldn’t create new kinds of debt that can be written off in a crisis, according to investors surveyed by Nomura International Plc.
Existing securities known as Tier 2 capital, which are subordinated notes and have set maturity dates, are favored given the lack of clarity from regulators on loss-absorbing bonds, according to the survey. Issuing notes out of holding companies to subordinate them is also preferred, the investors said in the survey.
“Investors don’t want to see yet more layers in the bank capital structure,” Emil Petrov, head of capital solutions at Nomura, said yesterday at a roundtable discussion at the company’s London offices. “They generally prefer that banks deal with the new loss-absorbing capital requirements with familiar instruments.”
Policy makers are demanding that the world’s biggest lenders issue hundreds of billions of dollars of securities that can be written off should the bank become insolvent. While regulators are encouraging lenders to sell notes out of holding companies to reduce the risk of contagion in a crisis, European banks say reorganizing would be expensive and may disrupt operations.
Analysts have suggested that banks may issue senior bonds with terms that include giving regulators the right to impose losses in a crisis. Danske Bank A/S is considering the sale of notes that would rank between senior debt and Tier 2 bonds, according to Tonny Thierry Andersen, the Copenhagen-based lender’s head of personal banking and chairman of the Danish Bankers’ Association.
Fifty-three percent of survey respondents said they expect banks globally to sell an extra $10 billion to $100 billion of loss-absorbing securities in the next three years. Another 36 percent said they’re expecting extra issuance of as much as $500 billion in the period.
The survey of 116 investors was conducted between Nov. 26 and Dec. 3, according to Nomura.