Credit Suisse – Perfection Priced into Long-Dated AT1

HSBC Q4 ’20: Surprisingly Credit Positive Results and Strategic Update

Standard Chartered Results: Lost at Sea with No Credit Catalyst

BNP Paribas: Capital, Forbearance and CDS

BNP Paribas: Personal Finance and Global Markets Sensitivity

Bank Contingent Capital & Coronavirus Contagion

Gravity Works As WeWork Doesn't; Now Plan B

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

We screen for value in <a href="https://www.smartkarma.com/entities/bnp-paribas" target="_blank" data-smartkarma-citation="entities:525:1" rel="noopener">BNP Paribas' (BNP FP)</a> AT1 curve within a post-COVID-19 economic operating environment. This is the final installment of a series of linked insights on BNP. Please see: <a href="https://www.smartkarma.com/insights/bnp-paribas-personal-finance-and-global-markets-sensitivity" target="_blank" data-smartkarma-citation="insights:46672" rel="noopener">Personal Finance and Global Markets Sensitivity</a> and<a href="https://www.smartkarma.com/insights/bnp-paribas-capital-forbearance-and-cds" target="_blank" data-smartkarma-citation="insights:46684" rel="noopener"> Capital, Forbearance and CDS</a> for background on BNP.First we assess whether BNP has the capacity to absorb losses from its COVID-19 relief lending. Then we screen for potential extension risk and determine where the market may be mispricing BNP’s credit risk while considering the liquidity of these instruments.BNP’s AT1 curve is relatively steep and offers value for duration driven investors. However, the question is whether investors should be reaching for duration at this point in the Covid-19 economic cycle. Consistent with the current fad of rear-view mirror method of investing, BNP’s longer duration AT1 bonds appear overbought relative to their credit risk and alternative credit instruments. Medium duration AT1 bonds offer a bigger pick-up in credit spread terms, while providing better protection against an unexpected increase in inflation and interest rates, which would be negative for long duration assets. We think it best to pass on BNP’s Legacy Tier 1 bond.

We screen for value in BNP Paribas' (BNP FP) AT1 curve within a post-COVID-19 economic operating environment. This is the final installment of a series of linked insights on BNP. Please see: Personal Finance and Global Markets Sensitivity and Capital, Forbearance and CDS for background on BNP.First we assess whether BNP has the capacity to absorb losses from its COVID-19 relief lending. Then we screen for potential extension risk and determine where the market may be mispricing BNP’s credit risk while considering the liquidity of these instruments.BNP’s AT1 curve is relatively steep and offers value for duration driven investors. However, the question is whether investors should be reaching for duration at this point in the Covid-19 economic cycle. Consistent with the current fad of rear-view mirror method of investing, BNP’s longer duration AT1 bonds appear overbought relative to their credit risk and alternative credit instruments. Medium duration AT1 bonds offer a bigger pick-up in credit spread terms, while providing better protection against an unexpected increase in inflation and interest rates, which would be negative for long duration assets. We think it best to pass on BNP’s Legacy Tier 1 bond.

BNP Paribas: Screening for AT1 Value, Post-Covid-19