FINANCIAL INSIGHTS: AT-1 AT-1 issuance market, Singapore banks remain strong and stable
Headquarters of the Swiss investment bank UBS on Bahnhofstrasse street (Photo by UBS Global)
idiosyncratic and depend on the magnitude and nature of the problem and the consequences if it is not solved. Further, bank regulators and public authorities maintain significant clout in normal times but have typically even more clout in stressful times. Regulators and public authorities have considerable powers and a range of tools at their disposal,” a report by S&P Global Ratings said. Yet, the Swiss regulator did not undergo a resolution process, rather a point of non-viability (PONV). The PONV scenario is often left as an open discussion by regulators. This leaves more room for interpretation of which events are considered infeasible and gives monetary authorities the pliability to write off AT-1 notes similar to FINMA. “In a certain situation, if a limited amount of capital is required, regulators would be able to impose PONV and write off the AT-1 bondholders without going through a resolution process, and therefore, without shareholders facing losses first. We do expect, unlike in the case of FINMA, that APAC regulators will use the PONV clause if required in situations where they have to arrange for capital support and not for situations where they arrange for liquidity support,” explained CreditSights. Singapore is known to strictly comply with its NCWO framework that creditors who receive a lower amount during a resolution process compared to what they would have received if the bank had been liquidated, can seek
reimbursement for the shortfall from a resolution fund provided by the financial industry. “The creditor compensation framework will also apply in the exceptional situation where MAS departs from the creditor hierarchy in order to contain the potential systemic impact of the [financial institution’s] failure or to maximise the value of the [financial institution] for the benefit of all creditors as a whole,” the Monetary Authority of Singapore (MAS) said in a statement. It is important to note that AT-1 papers are strictly offered in Singapore’s wholesale market. Only institutional and accredited investors, or transactions in denominations worth more than S$200,000 can access this type of bond or investment. On the other hand, the
MAS, being the central bank, continued to remind financial institutions that investors shall and always be informed of their offerings, especially AT-1bonds. Further, pressing on the fact that disclosures, features and risks should be kept clear and concise. Issuance in the future Natixis’ Ng said Singapore banks issuing AT-1 bonds in the regulatory environment are all about “confidence and predictability.” “The monetary and financial regulations imposed by MAS are already one of the most stringent in the world to provide for a stable financial environment, and the stability could benefit local banks when competing with other banks in the market,” he said. Despite numerous banks putting a halt to their AT-1 issuances in the aftermath off the Credit Suisse incident, some are now slowly getting back in the grind. “There is no new issuance from Singapore after the UOB’s deal in January 2023. In the medium run, Singaporean banks are likely continuing their issuance once sentiment improves,” Ng said. Such an outlook suggests that in the face of uncertainties in the AT-1 issuance market, Singapore banks remain strong and stable. And that’s because their resilience and adaptability during global banking crises is built-in, proving once again why they stand tall amidst the winds of change.
The UBS-acquired Swiss bank’s main office in Zurich, Switzerland
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