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German lender cancels interest payments on bonds

Bremer Landesbank has said it will cancel all interest payments on its most subordinated debt, in one of the first moves of its kind in Europe’s market for risky bank bonds.

The bank’s €100m junior bond fell by nearly 10 per cent to trade at just over 80 cents on the euro on Tuesday. Another of its subordinated bonds, with a face value of €50m, is currently trading at 78 cents on the euro.

“The management board of Bremer Landesbank decided to cancel, at the next interest payment date, all payment of interest on the AT1 Notes forming part of the own funds,” the bank said in a statement on Tuesday. The next payment date comes on June 29.

The bonds fell sharply in value last summer due to concerns over losses from a portfolio of shipping loans, and have been trading at distressed levels since. NordLB, previously the majority owner, took full control of Bremer Landesbank in September last year.

Additional tier 1 (AT1) bonds, which are issued by banks, are designed to take losses at times of distress. Investors have closely watched the European market, which has grown since the financial crisis to shore up bank balance sheets, for signs of losses or coupon deferrals.

Earlier this month, bond investors in Banco Popular took major losses after the bank was put into resolution and acquired by Santander for just €1. In that instance, losses were not imposed through coupon cancellation prior to write-down.