‘Like Several Rate Hikes in One Day’: What’s Next After AT1 Rout

Additional Tier 1 debt just got a lot more expensive for European banks, a problem for lenders that use the notes as a crucial capital buffer.

Yields on an index of AT1s in Europe surged on Monday following Credit Suisse Group AG’s controversial wipeout of the risky debt, to an average of 15.4%, although they since eased slightly. In early February, yields on AT1s were as low as 7.8%, according to a multi-currency index compiled by Bloomberg.

“This is a big tightening in financial conditions,” said Gordon Shannon, a fund manager at TwentyFour Asset Management. “Bank funding is ...