140 billion yen sale marks first major bank’s AT1 bond offer since Credit Suisse wipeout

SUMITOMO Mitsui Financial Group (SMFG) sold yen Additional Tier 1 (AT1) bonds, becoming the first major global bank to issue such debt since the collapse of Credit Suisse Group last month.

The deal is another sign that the global financial turmoil triggered by the failure of Silicon Valley Bank is easing. The Tokyo-based lender sold 140 billion yen (S$1.4 billion) of AT1 notes in two parts, according to sole underwriter SMBC Nikko Securities.

Financial authorities regard SMFG as one of around 30 global systemically important banks, and no lender of that rank has sold an AT1 note since UBS Group took over Credit Suisse, Bloomberg-compiled data show. The deal came after Swiss regulators imposed more than US$17 billion of losses on holders of Credit Suisse AT1 debt, rattling the market and making sales of this type of junior debt challenging and expensive.

AT1 notes, also known as contingent convertible or CoCo bonds, are considered the riskiest debt sold by banks. That’s because they are designed to impose losses on bondholders or be converted into equity if a lender’s capital ratios fall below a predetermined level. Regulators can write them down as well if a bank starts to fail.

The securities have rebounded in recent weeks from the market-wide losses inflicted by the terms of the Credit Suisse Group rescue, another sign that stress from the recent financial turmoil is subsiding.

SMFG priced perpetual notes that can’t be called for five years and two months at a spread of 171 basis points and similar no-call 10-year two-month debt at 171 basis points, according to SMBC Nikko.

SEE ALSO

MUFG clients lost US$700 million in Credit Suisse AT1 wipeout

Those compare with the lender’s existing perpetual bonds callable in December 2026 that were issued at a spread of 120 basis points in 2017. The yield premium has widened to around 166 basis points this week, data compiled by Bloomberg show.

Mitsubishi UFJ Financial Group is also planning a two-part AT1 bond deal as soon as mid-May. BLOOMBERG