2Yr·

Bank bondholders lose again

As part of the takeover of Credit Suisse ($CSGN) the Swiss regulator Finma has decided to write off Credit Suisse's AT1 capital in full. This is nothing more than convertible bonds (also known as coco) that are converted into equity when a bank gets into trouble. This is a mechanism that was introduced after 2008 to strengthen banks' capital when needed.

This move came as a surprise to many. Could this trigger a sell-off of bank debt?

Credit Suisse has been the poor student among systemically important banks in Europe in recent years, and with its customers (and to some extent investors) losing confidence, a takeover by longtime rival UBS ($UBSG (+2.9%)) was the most obvious outcome.

It looks like a good deal for it, paying only a fraction of the bank's equity, estimated at $49 billion at the end of last year. Now, UBS will probably have to sell some assets to get a handle on competitive issues, but this deal is likely to be value-enhancing and welcome news for the banking system as a whole.

#banken
#ubs
#creditsuisse

7 Comments

MORE MONEY BOY 🤑@EnjoyCapitalism

2Yr

Is it currently possible to draw parallels with the 2008 financial crisis by equating the sharp fall in the bond market and the associated losses incurred by the banks, some of which have to be realized, and the accompanying loss of confidence on the part of customers and investors, with the mortgage bonds that burst at that time?

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Raphael Steil@TheRealRapha

2Yr

@EnjoyCapitalism Tomorrow. I think that's the golden question, where you currently don't have a right or wrong answer. What we realize is that the monetization of banks, above a certain interest rate level, becomes very challenging. And as was the case with the mortgage loans, now the regulators have to find a way to keep the banking sector stable. Because if a big bank goes under, then you have very quickly liquidity problems with their customer (be it private or corporate) and this would have of course economically seen very severe consequences. But that's why the Fed & Finma have now intervened respectively (and with CS this should have happened years ago, only that their main investors and the regulator didn't want it). But what you have to say is that news/rumors/fears spread much faster through social media than back in 2008.

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MORE MONEY BOY 🤑@EnjoyCapitalism

2Yr

@TheRealRapha will be exciting in any case, especially when you consider that a bank bailout is only possible with massive monetary support, which means that the fight against inflation is at risk. Add to that the threat of recession. The central banks are currently in a quandary.

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Gerit@Gerit

2Yr

Personal question: With your understanding of the financial sector, why do you "only" have shares in Blackrock and no other financial service providers/banks in your portfolio? I am aware that in the current situation it is not possible to foresee how the whole thing will go this year, but you could already position yourself in such a way that you can directly access the right companies in case of corresponding exits. ( Keyword: $ALLY )

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Raphael Steil@TheRealRapha

2Yr

@Gerit Have been waiting for such a question 😅 I had insurance stocks in the portfolio for a long time, because I found them suitable for my portfolio, mainly because of interesting & stable dividends. This was also the reason why I took Blackrock in the portfolio. And about the bank stocks, I think there are much better niches/sectors where you can get growth or stable dividends. Especially with regard to EU banks, there is nothing going on for years. I am also invested in DB (through company shares from my time there, but that is unfortunately very manageable and therefore not included :))

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Gerit@Gerit

2Yr

@TheRealRapha

Thank you for your answer, of course you are right that the growth is manageable. With banks I have the feeling and from what I could take from Buffett, that you really only have the chance to get in once every 10-20 years, the entry really makes the most difference, with Big Tech or similar, you can wait relaxed and the companies grow somehow into the valuations, but with banks you can also run sideways for 10 years (ex. dividends). Dividends) I see good potential for you, especially since now the whole sector is subject to strong volatility and maybe we as a community can then also learn something from and benefit from your experience and knowledge. :)

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Raphael Steil@TheRealRapha

2Yr

@Gerit Thank you very much. We look internally to which topics we can offer added value and if this then fits, then we do it very gladly :)

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