Financial Times: European banks’ riskier debt deals nearly double

09 November 2014

Issuance of subordinated debt – which would suffer losses during a default before senior debt in a bank’s capital hierarchy – have risen by 80 per cent year on year to $122.4bn so far in 2014 according to Dealogic, the data provider.

The year-to-date total is the highest since 2007, before the global financial crisis.

Faced with record-low interest rates elsewhere, European banks have sought to capitalise on investors’ hunger for higher-yielding, though potentially more hazardous, assets according to Didier Saint-Georges, a member of the investment committee at the Paris-based fund group Carmignac Gestion.

“One of the objectives of central banks has been to encourage risk-taking, by crowding out investors from risk-free assets,” said Mr Saint-Georges. “For the banking sector, the impact this has on the relative attractiveness of each asset class is striking and it has become more difficult to pick winners with an acceptable risk profile and beat benchmarks.”

Significantly, subordinated debt as a proportion of financial institutions’ total debt issuance grew five percentage points over the same period last year to 23 per cent – the joint highest proportion on record.

© Financial Times