Head Credit Research
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At this year's Investor Forum on the subject of Cantonal banks and their hybrid bonds, the discussion topics were the challenges posed by the low interest rate environment and the business and strategic adjustments made by the Cantonal Banks. The study by Ingo Stössel, Credit Analyst Investment Banking Vontobel, provided a sound basis for discussion of the focal topic of the event: hybrid bonds issued by the cantonal banks.
This year's Investor Forum on November 13 focused mainly on the importance of the Cantonal Banks' interest differential business in the current low interest rate environment, the diversification of business models, and the role of hybrid bonds for the Cantonal Banks. The event was opened by Herbert Scheidt, Chairman of the Board of Directors of Vontobel. Dominik Meyer, Head of Credit Research Investment Banking at Vontobel, then gave a brief overview of our Credit Research.
SGKB, LUKB, GLKB, BCGE, ZKB and BKB were represented at the event. They offered valuable insights into their business models as well as into their experience as issuers of hybrid bonds. Ingo Stössel began with the findings of his study in order to provide a sound basis for the lecture series. This study shows how the CoCo (Contingent Convertible Bond) market moves in Switzerland and what the most important bond terms of the instruments are for investors. They also presented the Vontobel Credit Research Rating Methodology.
Margin pressure remains an issue as long as interest rates are low and the yield curve remains flat. In order to diversify the business model, the cantonal banks are trying to strengthen other business areas, such as private banking, asset management or structured products.
The motivation for issuing CoCo bonds remains the strengthening of the capital base, which is currently driven by the replacement of older bonds. Following the high issue volumes in recent years, somewhat lower issuance activity is expected in 2020.
In the following video interview, Mr Hurschler, CFO of the Luzerner Kantonalbank, explains his experiences with the issuance of AT1 bonds and comments on how he estimates the CHF CoCo market in the coming years as well as on the expected challenges in the next 3-5 years.
Ingo Stössel, Credit Analyst at Vontobel Investment Banking, explains why Vontobel covers CoCo bonds, discusses the biggest concerns in this asset class and talks about his expectations for issuance in the coming year.