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StanChart CEO says AT1 bond wipeout has profound impact
Global Banking & Finance Review®
Company
By Selena Li
HONG KONG (Reuters) -Standard Chartered Chief Executive Bill Winters said on Friday Credit Suisse AG’s $17 billion Additional Tier 1 bonds wipeout had “profound” implications for global bank regulations.
Winters told a financial forum in Hong Kong the U.S. Federal Reserve move to guarantee non-insured deposits was a “moral hazard”.
As part of the deal for UBS Group AG to take over Credit Suisse, the Swiss regulator determined that Credit Suisse’s AT1 bonds with a notional value of $17 billion would be wiped out, a decision that stunned global credit markets and angered many holders.
“I think it had very profound implications for the regulation of banks, and for the way that banks manage themselves,” Winters said.
Apart from Credit Suisse takeover, two U.S. banks collapsed in the past two weeks and America’s biggest lenders agreed to deposit $30 billion in beleaguered First Republic Bank.
Winters said there appeared to be “non-viable business models remaining, at least in the U.S.”, with other banks that had similar deposit concentrations.
The banking chief said the move to guarantee non Federal Deposit Insurance Corporation-insured deposits was the “most wonderful example of moral hazard that we’ve come across in quite a while.”
Following the banking crisis, Standard Chartered’s liquidity coverage ratio (LCR), a measure of how much cash-like assets the bank has, is much higher now, Winters said.
The bank had 147% LCR before the bank failures and this was “substantially higher now”, Winters said, without disclosing the current level.
“The issue isn’t do the regulator’s have confidence in our solvency. It’s does the market have confidence in our liquidity?”
(Reporting by Selena Li in Hong Kong; additional reporting by Scott Murdoch in Sydney; Editing by Christian Schmollinger and Stephen Coates)
An Additional Tier 1 (AT1) bond is a type of financial instrument used by banks to maintain their capital levels. These bonds can be written down or converted into equity if the bank's capital falls below a certain threshold.
The liquidity coverage ratio (LCR) is a regulatory requirement for banks to hold enough liquid assets to cover their short-term obligations. It is designed to ensure that banks can survive financial stress.
Non-insured deposits are funds held in a bank that are not covered by deposit insurance, meaning that if the bank fails, depositors may lose their money. These deposits typically include larger sums that exceed insurance limits.
A bank takeover occurs when one financial institution acquires another, often to stabilize a failing bank or expand market presence. This can involve purchasing assets and liabilities or merging operations.
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