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Riskiest Bank Debt May Face First Test at German Ship Lender

  • Bremer losses may endanger payments on additional Tier 1 notes
  • No bank has missed AT1 coupons in bonds’ three-year history
Updated on

The bond market created by regulators to avoid panic and state bailouts when lenders get into trouble has come roaring back. It may soon become clear whether that confidence will last.

The first test of the riskiest type of bank debt may may come this month as Bremer Landesbank is likely to disclose losses that could force it to skip coupon payments on additional Tier 1 notes, according to two bondholders, Berlin Portfolio Management GmbH and the asset management unit of Degussa Bank AG. No bank has missed the optional payments on these bonds since their introduction three years ago, and the market reaction will show whether AT1s are steadying capital buffers for weak lenders or a minefield of unappreciated risks for holders.