(Bloomberg) -- HSBC Holdings Plc is repaying a type of capital issued back in 2000, triggering a big price jump, as it continues to clean up its books of instruments that have been rendered obsolete after the overhaul that followed the global financial crisis.
The lender will be redeeming a $900 million preferred security issued by HSBC Capital Funding (Dollar 1) L.P., an issuing entity set up in the island of Jersey, and an associated note. It will pay holders the higher of the face value and the value of a make-whole call option, it said in a statement Friday.
In a separate statement, HSBC said it won’t be taking any action on a similar sterling-denominated subordinated instrument, issued in 2003.
The called note gained almost 5 cents on the dollar, its biggest jump in 14 years, to 130 cents, based on data compiled by Bloomberg.
The move is part of an ongoing effort to ditch old-school securities that once counted as capital for banks. HSBC last year kick started a rush from lenders globally to repay even older issues, first sold back in the 1980s. These so-called disco bonds were among the most lucrative trades of last year.
Banks these days have to abide by Basel III regulations that came into effect following the global financial crisis. Under the current rules, banks can only supplement common equity with Additional Tier 1 capital, which typically takes the form of contingent convertible bonds or, as is the case in the US, preferred stock.
Over time, HSBC “will continue to evaluate its options to further reduce its volume of legacy securities,” it said in the statement. This includes the sterling notes.
Lenders have often kept notes no longer counting as capital well after the deadline allowed by regulators, as their cost is lower than what it would take for the bank to raise new money to replace them.
HSBC “expects to evaluate opportunities to reduce its legacy securities against a desire that decisions are taken where they present a reasonable economic cost,” it said in the statement.
(Updates with price move and context throughout.)
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