Regulators in Hong Kong and Singapore moved to reassure investors that subordinated debt holders have priority over equity holders in the event of a bank being wound up, joining global peers in seeking to remove uncertainty.
(Bloomberg) — Regulators in Hong Kong and Singapore moved to reassure investors that subordinated debt holders have priority over equity holders in the event of a bank being wound up, joining global peers in seeking to remove uncertainty.
The Monetary Authority of Singapore plans to abide by the hierarchy of claims in any liquidation of a local lender, according to a statement Wednesday. The Hong Kong Monetary Authority said there is a clear order in which shareholders and creditors would bear losses, meaning equity investors would absorb losses first, followed by holders of capital instruments including Tier 1 and Tier 2, a separate statement showed Wednesday.
The moves from the Asian regulators come as rattled global investors reexamine AT1 instruments and their rank in the pecking order after a state-led rescue of Credit Suisse Group AG wiped out its AT1 note holders while preserving billions of dollars of value for shareholders. Some Asian banks, including Hong Kong-based Bank of East Asia Ltd., saw their AT1 notes fall by a record earlier this week, before staging a partial recovery on Wednesday.
The recent turmoil in AT1 notes is a headache for banks, which issue this type of bond to bolster financial resources in a way that’s usually cheaper than normal equity such as shares. They were created by European regulators after the financial crisis to ensure creditors absorb losses when banks start to fail rather than taxpayers.
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