medium · Corporate Credit Analysis cca-core
A European bank AT1 (Additional Tier 1) instrument has a trigger at a 5.125% Common Equity Tier 1 (CET1) ratio. The bank currently has a CET1 ratio of 12.0%.
Which of the following events would most likely trigger a write-down or conversion of the AT1?
- The bank suffers a catastrophic trading loss that consumes more than 7% of its risk-weighted assets.
- The bank's senior unsecured rating is downgraded two full notches, from A into the BBB category.
- The bank fails to call the AT1 instrument at its first call date, leaving it outstanding with a reset coupon rate.
- The bank's board decides to cancel its common equity dividend this quarter in order to preserve regulatory capital.
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