Though investor expectations typically assume that financial institutions will redeem these instruments at their first call date, DB’s decision to forgo the call raised eyebrows, especially as it was the first major issuer to skip a call since the fallout from the writedown of Credit Suisse Group AG’s AT1s in March 2023. Such actions can often be interpreted by the market as potential indicators of financial distress or liquidity issues, which can significantly undermine investor confidence.
In a move that captured the attention of financial markets, Deutsche Bank (DB) on March 21 announced that it would not call its US$1.25 billion ($1.69 billion) Additional Tier 1 Capital Instrument (AT1), which carries a coupon rate of 4.789%, at its next call date on April 30. This decision sparked some discussion, especially since it goes against the common expectation that financial institutions will redeem AT1s at the first or next available opportunity and that DB also concurrently announced that it would call another US$1.5 billion AT1 at its first call date, also in April.
AT1s are perpetual securities, meaning they do not have a maturity date
AT1s typically offer higher yields compared to traditional bonds due to their subordinated rank, non-call risk and loss absorption mechanism (e.g., converted into equity or written down under certain conditions, for instance, when a bank’s capital falls below a specified level). However, AT1s are subject to a coupon reset mechanism, which allows the coupon rate to be adjusted when AT1s are not called at specified intervals (e.g., five years).
