(Bloomberg) – Deutsche Bank AG has chosen to leave one of its additional 1 bonds, which has led to expectations that European banks will have the first chance to retire their debt.
The lender said that the call scheme will not be exercised to exchange $1.225 billion of 4.789% notes, and has tackled the decisions with its “case-based approach” strategy, according to a statement.
AT1 has been crying in recent years, with investors eager to take on riskier debt types, while European banks offer record profits in the context of higher interest rates. Although AT1 bonds are designed for permanent securities, they are usually called when the first opportunity is.
Deutsche Bank’s decision to not redeem security will bring so-called expansion risks and become the forefront of investors’ minds. Jose Mosquera, chief investment officer of Madrid-based hedge fund Rho Investments Multi-Strategy, said the bid price of the notes was close to standard on Friday.
“DB has always been in a more pragmatic investor-friendly sphere,” he said. “It should be very clear for investors that the appeal is based purely on economic viability, despite the belief that some issuers are still more lenient than others.”
Deutsche Bank said in the same statement that it will exchange AT 1 bonds for $1.5 billion in $1.5 billion in bonds on April 30.
Sales of AT1, which aim to absorb losses when banks are in trouble, ran at a record pace earlier this year as issuers took advantage of tight spreads to issue new notes.
– Assistance with Colin Keatinge.
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