SMFG Sells First Major Bank AT1 Bond Since Credit Suisse Wipeout
Sumitomo Mitsui Financial Group Inc. (SMFG) has sold the first major bank Additional Tier 1 (AT1) bond since Credit Suisse Group AG’s wipeout of its AT1 securities in February.
SMFG’s AT1 Bond
SMFG sold a $1.5 billion perpetual non-call five-year AT1 bond on April 19, 2023. The bond was priced at a coupon of 4.875%, which is the lowest coupon ever for a Japanese bank AT1 bond. The bond was issued at a spread of 230 basis points over the five-year mid-swap rate.
The bond was well received by investors, with the order book reaching $3.5 billion. The bond was sold to a wide range of investors, including asset managers, banks, and insurance companies.
AT1 Bonds
AT1 bonds are a type of debt instrument that is issued by banks and other financial institutions. They are typically perpetual, meaning they do not have a maturity date. The bonds are subordinated to other debt instruments, meaning they are at a higher risk of default.
AT1 bonds are typically issued with a coupon, which is the interest rate paid to the bondholder. The coupon is usually higher than other debt instruments, such as senior bonds, to compensate for the higher risk of default.
Credit Suisse Wipeout
The sale of SMFG’s AT1 bond comes after Credit Suisse Group AG’s wipeout of its AT1 securities in February. Credit Suisse had issued $2.2 billion of AT1 bonds in 2018, but the bonds were wiped out after the bank reported a loss of $4.7 billion in the fourth quarter of 2020.
The wipeout of Credit Suisse’s AT1 bonds had raised concerns about the safety of AT1 bonds, as it was the first time a major bank had wiped out its AT1 securities.
AT1 Bond Market
Despite the Credit Suisse wipeout, the AT1 bond market has remained resilient. In the first quarter of 2023, AT1 bonds issued by Japanese banks totaled $9.3 billion, up from $7.2 billion in the same period last year.
The strong demand for AT1 bonds is due to the fact that they offer higher yields than other debt instruments. In addition, the AT1 bonds are seen as a safe investment, as they are backed by the issuing bank.
SMFG’s AT1 Bond Sale
The sale of SMFG’s AT1 bond is a sign that investors are still willing to invest in AT1 bonds, despite the Credit Suisse wipeout. The strong demand for the bond is a testament to the resilience of the AT1 bond market.
The success of SMFG’s AT1 bond sale is also a sign that investors are confident in the Japanese banking sector. The strong demand for the bond is a sign that investors are confident in the ability of Japanese banks to weather any potential economic downturns.
Conclusion
The sale of SMFG’s AT1 bond is a sign that the AT1 bond market is still resilient, despite the Credit Suisse wipeout. The strong demand for the bond is a testament to the confidence investors have in the Japanese banking sector. The success of SMFG’s AT1 bond sale is a sign that investors are still willing to invest in AT1 bonds, despite the risks associated with them.