81,841
edits
Tier 1 capital: Difference between revisions
no edit summary
Amwelladmin (talk | contribs) No edit summary Tags: Mobile edit Mobile web edit |
Amwelladmin (talk | contribs) No edit summary Tags: Mobile edit Mobile web edit |
||
| Line 75: | Line 75: | ||
=== On creditors ranking behind equity-holders, feelings and so on. === | === On creditors ranking behind equity-holders, feelings and so on. === | ||
Even leaving titillating bank analyst punch-ups aside for a moment, the abstract conceptual question this throws out is | Even leaving titillating bank analyst punch-ups aside for a moment, the abstract conceptual question this throws out is a belter: should creditors, however subordinated, ''ever'' rank ''behind'' shareholders? | ||
Surely ''not''? | Surely ''not''? | ||
| Line 81: | Line 81: | ||
Everyone knows AT1s can get converted into equity, whereupon they rank equally with shareholders, and they may even be written off. But there seemed to be the expectation that a write-off would only happen if common shareholders are getting written off too. | Everyone knows AT1s can get converted into equity, whereupon they rank equally with shareholders, and they may even be written off. But there seemed to be the expectation that a write-off would only happen if common shareholders are getting written off too. | ||
First, a little spoiler: ''effectively'' ranking behind shareholders and ''actually'' ranking behind shareholders may ''feel'' similar — especially if you have just been written down to zero while the shareholders live to see another day — but they are different. When an AT1 is written down, its | First, a little spoiler: ''effectively'' ranking behind shareholders and ''actually'' ranking behind shareholders may ''feel'' similar — especially if you have just been written down to zero while the shareholders live to see another day — but they are different. When an AT1 is written down, its creditors’ claims ''do'' rank ahead of shareholders. It is just that the ''value'' of their claim is a ''big fat [[donut]]''. | ||
Another spoiler: this should not have come as a surprise. Issuers ''must'' have contemplated writing AT1s down while shareholders survived: otherwise, why even ''have'' | Another spoiler: this should not have come as a surprise. Issuers ''must'' have contemplated writing AT1s down while shareholders survived: otherwise, why even ''have'' them? A write-down Note contingent on total shareholder annihilation is the same as a normal conversion to equity: you get what the shareholders get: sweet Fanny Adams. If that is the plan, then just issue normal contingent convertible bonds. | ||
These AT1s were ''not'' normal convertible bonds. They were “Perpetual Tier-1 Contingent ''Write-Down'' Capital Notes”. Again, that name. Important. | |||
The whole point of writing down AT1s is to deliver a capital buffer and stave off an insolvency ''so the bank can carry on''. | The whole point of writing down AT1s is to deliver a capital buffer and stave off an insolvency ''so the bank can carry on''. | ||
| Line 99: | Line 101: | ||
=== Did the AT1s ''really'' do worse than common equity? === | === Did the AT1s ''really'' do worse than common equity? === | ||
But AT1 investors whose notes are written off | But AT1 investors whose notes are written off still ''feel'' as if they are ''effectively'' ranking behind shareholders. This is their [[lived experience]]: they get nothing and shareholders get something. | ||
But is that really true? | But is that really true? | ||