MILAN: UniCredit said on Thursday it would redeem in June a 1.25 billion euro ($1.38 billion) ‘Additional Tier 1’ (AT1) perpetual bond after receiving supervisory approval, adding it had no need to sell similar debt in the near future.
Investors’ confidence in AT1 bonds has been rocked by a Swiss authorities’ decision to wipe out $17 billion of Credit Suisse’s CSGN.S AT1 debt under its takeover by UBS, in a move that hit AT1 holders harder than shareholders.
As a consequence, liquidity in the AT1 market dried up, yields soared - making refinancing impossible - and investors worried that lenders would not stick to an unwritten market practice under which issuers redeem AT1 bonds - which are perpetual - at the earliest opportunity.
To do so, banks need approval from supervisors because such bonds, which are designed to help lenders withstand possible losses, count towards their capital buffers and banks would normally need to refinance them.
Reuters first reported in March that UniCredit had applied to the European Central Bank to be able to repay the AT1 bond at the first call option date on June 3.
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A supervisory source told Reuters at the time that banks with strong capital ratios such as UniCredit did well to call AT1 bonds and prop up investor confidence.
AT1 bonds were introduced in the wake of the global financial crisis to provide lenders with tools that could allow them to pass on losses to investors, shielding taxpayers.
Such tools are known as Total Loss Absorbing Capacity (TLAC) and Minimum Requirement for own funds and Eligible Liabilities (MREL).
“UniCredit has strong capital levels and best-in-class organic capital generation,” the bank said on Thursday. “UniCredit has limited need for TLAC/MREL funding for the remainder of this year and no need to issue AT1 instruments in the foreseeable future.
UniCredit’s funding is well diversified by sources and geography.“
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