by ErStro00
AT-1 notes of Deutsche took a havy hit amidst the banking crisis unfolding
So…. After the near default of debit suisse, and the complete wipe out of 16bn USD in AT-1 notes, I decided today that it might be worth the time to do a “thorough” deep dive into the nature of these bonds.
So I found out, the Deutsche Bank issued such bond in November 2022 (ISIN: DE000A30VT97) Additional Tier 1, after refinancing and interest rose for all of us.
My two questions here is: Where did I miss out? Is this a smash or a pass?
For my “in-depth” investigation:
(+) First, Deutsche is paying a fixed coupon of 10% p.a. until 2028, which sounds not like a bad deal assuming inflation stays below the yield rate for the upcoming time. Another advantage would be the recuring “fixed” payments vs. spending hours analyzing stocks in order to loose cash.
(+) Second, most surprising for me, the bond currently trades 85ct for 1EUR, so the markdown is quite heavy. Deutsche Bank AG 10% Anleihe | A30VT9 | DE000A30VT97 | Kurs (boerse-frankfurt.de)
(+-)Third. I (tried) to read the emission prospectus and drew the conclusion, that the bonds will be worthless, when their Tier 1 Capitalisation Ratio will fall below 5.125%. It currently (12/31/22) sits at around 15%. So if the bonds are worthless, the bank has to be literally bankrupt. *2022-11-10_AT1_Prospectus.PDF (db.com)
(+) Fourth, Deutsche Bank had the Credit Suisse struggles from the years 2012-2018, scandals have been resolved, altough it took a long time, the bank reduced risks (they said so) and is currently run by a boring (looks solid) German guy. Not the type of CEO who draws attention by tailing his employes or circumventing Covid restrictions by using a corporate jet.
(-) Fifth, their rating is just litte above Credit Suisse last rating, in the range of A+ to A-. The credit defaul swap spreads are currently at 175 bps, so quite high.
The ECB said, under their jurisdiction, equity has to be consumed first. ECB Banking Supervision, SRB and EBA statement on the announcement on 19 March 2023 by Swiss authorities (europa.eu)
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.