OREANDA-NEWS. Fitch Ratings says that banks' Additional Tier 1 (AT1) issuance volume and pricing will continue to suffer under uncertainty surrounding the consequences of the UK vote to leave the EU, weak prospects for global growth and pending clarifications around coupon restriction triggers.

Issuance volumes recovered after a sharp drop in investor appetite in the first two months of 2016, but the outcome of the UK's EU referendum has induced renewed volatility in capital and currency markets. We expect banks with significant exposure to the UK to delay issuing confidence-sensitive instruments, including AT1, until market sentiment improves. UK banks have been among the largest issuers of AT1 securities to date, but HSBC was the only bank to issue AT1 in 2016 ahead of the UK referendum.

A possible decrease of policy interest rates in the UK and EU could underpin the attractiveness of these higher yielding instruments, as would more clarity on coupon omission mechanism. But on balance, we believe the AT1 issuance market will be depressed for the remainder of 2016, and the volume seen in 2015 of USD82.5bn globally, is unlikely to be matched this year in the absence of a strong rebound in the second half of the year.

Market conditions permitting, we expect continued issuance by Asian banks, where outstanding AT1 instruments are still low as a share of risk-weighted assets, and in selected European countries, for instance Switzerland, where the largest banks can use up to 4.3% of high-trigger AT1 instruments to meet 2019 going concern capital requirements.

In its latest AT1 Tracker Dashboard, Fitch highlights that banks issued a low USD14.6bn in 1Q16, of which around 60% was by Chinese and Japanese groups. EMEA issuance in 2016 to date included well-established French, Italian, Swiss, Dutch and Spanish names, along with smaller issues, including an Israeli bank's Tier 2. Fitch's AT1 Tracker includes 195 capital instruments with numerical write-down or conversion triggers, totalling USD231.7bn.

The updated Tool includes rated and unrated AT1 and other capital-trigger bonds issued up to end-1Q16 as well as end-2015 financial data on AT1 issuers, which allows users to assess the absolute and relative coupon risk of AT1 instruments and the write-down/conversion risk of AT1 and Tier 2 contingent capital instruments. The Dashboard also includes country - or bank-specific commentary including on pending regulatory developments.