Category Archives for "Bank Capital"
UCGIM or RBIAV AT1
In general, investors seem to like owning AT1s issued by core Eurozone banks and avoid those issued by peripheral banks, especially the Italians. They are probably right to do so to a large extent given the potential tail risks emerging from Italian politics, for example. But, what if there is a core Eurozone bank that is mostly EM in nature but benefits from its Austrian domicile?
That brings us to our trade idea for this week – Long the UCGIM 6.75 Perp 21 at 98 cash price and short the RBIAV 4.5 Perp 25 at 82 cash price…
Deutsche Bank (DB) reported Q4 (and full year) 18 results on Friday morning and they were hardly inspiring. The bank continues to underperform its rivals driven by what we believe to be is a broken business model, excessive reliance on FICC and very high cost base. The Q4 performance demonstrated the scale of the problems given the very difficult market conditions and drop in trading volumes.
And for all its efforts in 2018, the bank generated net income of just EUR 267 million translating to a meagre RoTE of 0.5%. On the positive side though, the bank generated annual profits for the first time since 2014. With a cost-to-income ratio of almost 93%, it seems that the bank needs to do radical restructuring and substantially move away from the FICC business and focus entirely on corporate banking and wealth management. In the meantime, what should AT1 investors do?
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