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Yes just saw this! Is anyone considering nibbling on any of the banks? If so how are you doing so? Andrew Bary had a nice piece in Barron’s where he favored JPM, MS and GS… it’s a good read.
I own BHB. I will keep away from the big giant "important" names. None of them deserve my money, after '08 - '09. I like the vital statistics at my chosen rather small regional bank. Offices in ME, NH, VT. Too cold for me. But there are people who like that stuff. And they have money. Do the Bushes still have that place in Kennebunkport?
Some interesting comments: John Leiper, chief investment officer at Titan Asset Management, has been working this weekend as the news around Credit Suisse kept coming. He’s been constantly checking messages and has been on the phone all the time, getting a ton of questions from clients, he told our reporter Sagarika Jaisinghani. He says it’s the busiest they’ve been in a long time. “It seems like a truly unique period,” Leiper said, “but I don’t think we are at peak volatility yet, not by a long way.”
Yes just saw this! Is anyone considering nibbling on any of the banks? If so how are you doing so? Andrew Bary had a nice piece in Barron’s where he favored JPM, MS and GS… it’s a good read.
Read that article too. - No - I’ll “pass” on banks. (Don’t ride roller-coasters either) ISTM Buffett has a modest amount in BAC. (2nd or 3rd largest holding after AAPL). Seems like a safer way to get some exposure.
I just checked PRISX (TRP Financial Services Fund). It’s held up better than I’d expect.
I am watching both bank KBE and regional bank KRE. But their Covid 2020 lows are still -42% down from here. So, the banking selloff has been sharp but it doesn't seem to be a washout. I may not wait for -42% down, but it seems too early to bottom fish now.
Thanks for sharing that data point @yogibearbull. Didn't realize we were that far from the lows on both bank etfs. its a good point. Its interesting that tech rallied so much last week in response to the drop in interest rates. But I really wonder whether those gains can hold when this banking crisis increases the odds of a recession.
You may hear about the controversial wipeout of $17 billion CS AT1/CoCo bonds.
These (AT1) bonds are contingent-convertible (CoCo) bonds common in Europe and Asia. In good times, these convert into equity. But in bad times, forced conversion can be done at loss, or the entire amount could be written down. So, they pay higher-yields. These count as Tier 1 capital.
What confused the investors in Europe was that AT1/CoCo bonds are ABOVE the common stock in the capital structure. So, how can there be ANY equity left, but ZERO for AT1/CoCo bonds? That is where the Swiss Government stepped in - it said, "because it says so". Oops! There goes an entire bond structure (CoCo) down the tube! This category may be damaged.
They aren't used in the US. But to count as Tier 1 in the US, a bank convertible in the US must be noncumulative.
From John Authers' Points of Return newsletter today:
“'Additional Tier 1' capital was a category introduced under the Basel III banking accords that followed the GFC, with the intention of providing banks with more security. Holders of the bonds were to be behind other creditors in the event of problems. In the first big test of just how far behind they are, we now know that AT1 bondholders come behind even shareholders."
"Credit Suisse’s roughly 16 billion Swiss francs ($17.3 billion) worth of risky notes are now worthless. The deal will trigger a complete writedown of these bonds to increase the new bank’s core capital — meaning that these creditors have had a worse deal than shareholders, who at least now have some stock in UBS."
"This follows the logic of the post-crisis approach, and it limits moral hazard. The question is whether anyone will want to hold AT1 bonds after this. The market response will be fascinating, and it remains possible that the regulators have avoided repeating one mistake only to make a new one."
European AT1/CoCo market has sold off and may have been compromised despite supportive statements from the ECB, EBA (European Banking Authority), SRB (Single Resolution Board) that what happened to (Swiss) Credit Suisse AT1/CoCo bonds CANNOT HAPPEN IN THE EU.
Comments
John Leiper, chief investment officer at Titan Asset Management, has been working this weekend as the news around Credit Suisse kept coming. He’s been constantly checking messages and has been on the phone all the time, getting a ton of questions from clients, he told our reporter Sagarika Jaisinghani. He says it’s the busiest they’ve been in a long time.
“It seems like a truly unique period,” Leiper said, “but I don’t think we are at peak volatility yet, not by a long way.”
I just checked PRISX (TRP Financial Services Fund). It’s held up better than I’d expect.
Approximate change in NAV:
YTD -12%
1 year - 22%
These (AT1) bonds are contingent-convertible (CoCo) bonds common in Europe and Asia. In good times, these convert into equity. But in bad times, forced conversion can be done at loss, or the entire amount could be written down. So, they pay higher-yields. These count as Tier 1 capital.
What confused the investors in Europe was that AT1/CoCo bonds are ABOVE the common stock in the capital structure. So, how can there be ANY equity left, but ZERO for AT1/CoCo bonds? That is where the Swiss Government stepped in - it said, "because it says so". Oops! There goes an entire bond structure (CoCo) down the tube! This category may be damaged.
They aren't used in the US. But to count as Tier 1 in the US, a bank convertible in the US must be noncumulative.
https://www.fidelity.com/news/article/top-news/202303191646RTRSNEWSCOMBINED_KBN2VL0GX-OUSBS_1
“'Additional Tier 1' capital was a category introduced under the Basel III banking accords that followed the GFC, with the intention of providing banks with more security.
Holders of the bonds were to be behind other creditors in the event of problems.
In the first big test of just how far behind they are, we now know that AT1 bondholders
come behind even shareholders."
"Credit Suisse’s roughly 16 billion Swiss francs ($17.3 billion) worth of risky notes are now worthless.
The deal will trigger a complete writedown of these bonds to increase the new bank’s core capital — meaning that these creditors have had a worse deal than shareholders, who at least now have some stock in UBS."
"This follows the logic of the post-crisis approach, and it limits moral hazard.
The question is whether anyone will want to hold AT1 bonds after this.
The market response will be fascinating, and it remains possible that the regulators
have avoided repeating one mistake only to make a new one."
European AT1/CoCo market has sold off and may have been compromised despite supportive statements from the ECB, EBA (European Banking Authority), SRB (Single Resolution Board) that what happened to (Swiss) Credit Suisse AT1/CoCo bonds CANNOT HAPPEN IN THE EU.