Will 2015 be a minefield for riskier bank bonds?

Ratings agencies went hell for leather downgrading financial hybrid bonds recently. And with upcoming regulatory changes, next year could prove tricky for bank bond investors. Rathbones' Bryn Jones explains why.

At the start of October, just over 1,000 financial hybrids received a downgrade. We had expected some downgrades to take place, but rating agency S&P got out the scythe and let loose. AT1 (Additional Tier I) bonds also got downgraded aggressively, with a number of bonds moving to sub-investment grade. But Moody’s or Fitch may well follow suit later this year. Potential minefield? With the Asset Quality Review results last month, and new accounting standard IFRS9 in the pipeline, next year could prove to be a minefield for riskier parts of the bank capital structure. The overall con...