Deutsche Bank Decides Against Calling One of Its AT1s Bonds

(Bloomberg) — Deutsche Bank AG is choosing to leave one of its Additional Tier 1 bonds outstanding, breaking with expectations for European banks to retire the debt at the first opportunity. 

The lender said it will not exercise a call option to redeem the $1.25 billion of 4.789% notes, according to a statement, citing its strategy of “taking a case-by-case approach” to those kind of decisions.

AT1s have been on a tear in recent years, with investors eager to take on riskier types of debt and European banks delivering record profits on the back of higher interest rates. AT1 bonds, while designed as perpetual securities, are typically called at the first opportunity. 

Deutsche Bank’s decision not to redeem the security will bring so-called extension risk to the forefront of investors’ minds. The bid prices on the notes were near par on Friday, said Jose Mosquera, chief investment officer at Madrid-based hedge fund Rho Investments Multi-Strategy.

“DB has always been at the more pragmatic and less investor friendly end of the spectrum,” he said. “It should be very clear to investors that calls should be purely based on economic feasibility, although granted that some issuers are still more lenient than others.”

In the same statement, Deutsche Bank said it would redeem a separate AT1 bond of $1.5 billion of 7.5% notes on April 30. 

Sales of AT1s, designed to absorb losses when a bank runs into trouble, were running at a record pace earlier this year as issuers took advantage of the tight spreads to issue new notes. 

–With assistance from Colin Keatinge.

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