Commerzbank targets flexibility, P2R benefits with AT1 programme

2 min read
EMEA
Tom Revell

Commerzbank has announced plans to establish a dedicated Additional Tier 1 issuance programme, in order to increase its flexibility amid volatile markets and take advantage of eased capital requirements.

The German lender said on Tuesday its board has decided to launch a programme that will ultimately allow it to issue up to €3bn of AT1. The timing of the first issuance under the programme will be decided at a later date.

Commerzbank issued its first AT1 last July. That US$1bn deal was issued using standalone documentation.

Bankers said the main advantage of having an established framework versus using standalone documentation is that it allows banks to prepare deals more quickly and enter the market more nimbly.

Such flexibility is likely to be useful in the coming months. Market participants say issuance windows for subordinated debt could be interrupted by bouts of volatility due to the coronavirus pandemic and will be harder to spot.

The AT1 market only recently reopened after the product was hit hard in the global sell-off triggered by the virus's spread.

"Issuing further AT1 is part of our strategy to optimize the capital structure. Having a program in place puts us into the position to issue whenever the opportunity arises in the market," a Commerzbank spokesperson said.

"Being able to act quickly is an advantage, especially in the current volatile market environment."

Commerzbank said the programme will also allow it to take advantage of recent changes to banks' capital requirements.

To ease pressure on banks amid the coronavirus crisis, the ECB recently granted them permission to use AT1 and Tier 2 bonds towards their Pillar 2 Requirements (P2Rs).

This cuts the amount of more expensive - and potentially more difficult to raise - Common Equity Tier 1 capital they must hold.

The change is expected to result in a substantial increase in European banks' subordinated debt issuance as they look to optimise their capital structures.