The Great Debate UK
Three months is a long time in the markets, and particularly for banks. Alongside the rally in bank shares, investors have also bid up bank bonds, especially so-called tier 1 bonds which rank just above the equity in the list of creditors.
In some cases, the prices these bonds have tripled and, overall, yields to perpetuity have halved across the sector, according to Morgan Stanley.
This rally has now overshot and the risks are on the downside. Despite being labelled debt, tier 1 is pretty much like equity: issuers can stop paying coupons, the coupons do not always accumulate if missed and the issuer can choose not to “call” (redeem) them at the call date.
- David Kuo is director at The Motley Fool. The opinions expressed are his own.-
BT’s annual results were expected to be bad. It turns out that they weren’t just bad – they were awful.
Now, many of us were expecting massive losses, a slashing of dividends, the axing of jobs and a gaping hole in the company’s pension fund. And BT duly delivered on all fronts.
Eugene Sheehy told investors last October that he’d rather die than raise equity. Luckily the Allied Irish Banks boss, who has announced his imminent “retirement”, won’t have to make good on that pledge.
from The Great Debate:
Our brains are wired for bubbles, it would appear, and regulation and tight external controls are the only way to save ourselves from ourselves.
Bankers, traders and investors effectively became addicted to the pleasure that comes from making money, while at the same time increasingly losing touch with just how much risk they were taking.