(Bloomberg) -- European banks have issued more Additional Tier 1 bonds in a single month than ever before, dashing concerns about the future of the risky bonds following a snub from Australia’s regulator.
Lenders have raised €13 billion ($14.5 billion) in September of the bonds that were designed after the global financial crisis to take losses when a bank gets into trouble. The month also marked the highest number of individual AT1 bonds sold in major currencies, with most activity taking place in the US dollar market, according to data compiled by Bloomberg.
The Australian Prudential Regulation Authority recommended phasing out Additional Tier 1 bonds earlier this month after $17 billion of Credit Suisse notes were wiped out last year. Instead of retrenching, European banks have been on an issuance spree, taking advantage of demand for high yields as the Federal Reserve joins major central banks in cutting rates.
Banks can issue AT1s instead of more expensive common equity, to a certain extent, to supplement their capital.
“AT1 is an important bit” of banks’ capital stack, said Daniel Fairclough, Barclays Plc’s group treasurer, at a banking conference held by S&P Global Ratings in London on Thursday. “Australia has obviously got particular, specific circumstances around the retail holdings of their AT1. I suspect it’s going to remain pretty mainstream for Europe and the UK,” he said.
Barclays is one of the world’s largest so-called contingent convertible bond issuers with $14.8 billion outstanding, according to data compiled by Bloomberg.
AT1s suffered their worst day on record in March last year when $17 billion of Credit Suisse notes were zeroed as part of a government-brokered takeover by UBS Group AG. They rebounded to end the year with a 7.2% return and are already recording double-digit gains in 2024, based on Bloomberg indexes.
US lenders issue preferred shares to raise Additional Tier 1 capital. They have been reducing this layer by billions of dollars as the so-called Basel Endgame of regulations is going to be watered down significantly from its original proposals.
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