IFR 03.08.2019

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BONDS CORPORATES

Barclays gets regulatory nod for AT1 calls

„ SSAR Lender to call AT1s despite FX hit

BARCLAYS met expectations last Thursday, saying

it would call three Additional Tier 1 bonds at the

earliest opportunity on September 15 even though

that would hit its Common Equity Tier 1 ratio.

Whether or not banks redeem AT1 has come

into sharp focus after Santander in February

opted not to exercise the first call on a euro AT1.

However, given Barclays had raised US$2bn

of AT1 in March and £1bn in June, investors were

expecting the bank to call the £2.3bn-equivalent

of US dollar, sterling and euro securities.

The bank said during first-half results it had

received regulatory approval for the calls, and

that redemptions would result in a pro forma fall

of about 13bp in its CET1 ratio as of June 30 due

to two of the instruments being held on balance

sheet at historical FX rates.

Because Barclays equity-accounts its AT1,

the instruments are carried for accounting and

regulatory capital purposes at the exchange rate

at time of issuance rather than the current rate.

This is not the case for debt-accounted Tier 1s.

The lender joins a stream of UK banks to

have called AT1 bonds this year. Lloyds Banking

Group, for example, redeemed a £1.48bn 7%

issue in June and Nationwide Building Society a

6.875% deal in April.

Coventry Building Society opted for a slightly

different approach earlier this year: it refinanced

AT1 debt with a deal and tender package in a bid

to reduce overall coupon payments and soften

the blow of the increased cost of capital.

As well as confirming the AT1 calls, Barclays

updated on its funding and said it had raised

£7bn-equivalent of MREL debt across senior, AT1

and Tier 2 out of an £8bn target.

That puts Barclays in a comfortable position

• a bonus, given the underperformance of UK
  bank debt following the appointment of Boris
  Johnson as prime minister.
  The Barclays £1bn perpetual non-call six-
  year AT1 priced in early June, for example, has
  dropped by over two points since then, according
  to Tradeweb data.
  Helene Durand