What is a AT1 (Additional Tier 1)?
The equivalent banking hybrid capital instrument, featuring contingent conversion or write-down at a CET1 ratio trigger.
AT1 (Additional Tier 1)
The equivalent banking hybrid capital instrument, featuring contingent conversion or write-down at a CET1 ratio trigger.
How it works in practice
A European bank issues a perpetual AT1 bond paying a 7% coupon. The bond's terms state that if the bank's Common Equity Tier 1 ratio falls below 5.125%, the bond converts into ordinary shares at a preset price. Investors accept this conversion risk in exchange for the higher yield. If the bank's capital position deteriorates sharply, AT1 holders absorb losses before depositors or senior creditors are affected.
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