What do you think of bank convertible bonds
Bank convertible bonds originated in 2003 and started in 2019. As of December 20 this year, the overall balance of convertible bonds accounted for 34% in the banking industry, far exceeding that of other industries. The amount of bank convertible bonds mainly includes policy background factors and bank's own capital supplement factors. After 2018, due to the market-oriented reform of interest rates and changes in the macroeconomic environment, the profit growth of the banking industry slowed down and the demand for external capital supplement increased significantly. Compared with non bank enterprise convertible bonds, bank convertible bonds have several differences: 1) the conversion rate of bank convertible bonds is very high. The conversion rate of 8 delisted banks is 99.83%, which is significantly higher than 76.81% of non bank enterprises. 2) The bank's convertible bonds have strong debt nature, thick debt bottom and high pure debt value, which plays a certain role in supporting the price of convertible bonds. 3) The trigger of the active downward revision clause of bank convertible bonds is relatively single, and it basically promotes the conversion of shares through forced redemption. At the same time, because the resale is equivalent to that the bank's convertible bonds do not reach the established goal of share conversion, banks generally do not set conditional resale terms.
How to invest in bank convertible bonds
Like convertible bonds in other industries, bank convertible bonds also have a variety of investment strategies. Here, we will not discuss the market familiar double low strategy, but focus on other strategies related to bank convertible bonds.
Take two main strategies as examples: 1) event driven game performance. Banks with capital pressure tend to improve performance growth and improve statements. The release of performance and the rise of stock price can form a mutual catalytic effect. When the positive stock price rises, the conversion probability of bank convertible bonds increases, and the price of convertible bonds often performs well. 2) Active downward revision of event driven game. The action and range of the downward revision of the conversion share price often reflect the company's real intention to convert shares. After taking the initiative to repair, it will often create better investment opportunities and realize excess returns. A few targets with excellent fundamentals will achieve higher growth.
How to measure bank capital gap
Whether the performance release of the game bank or the revised terms of the game bank's convertible bonds are essentially judging the bank's capital supplement demands. An effective way to find banks that really need to supplement capital is to measure the core Tier-1 capital gap, which involves the measurement of the core Tier-1 capital adequacy ratio. The prediction of the future core tier 1 capital adequacy ratio is based on the calculation of the net core tier 1 capital and the net risk weighted assets. The net amount of core tier 1 capital in the next period is equal to the ending value of the previous period, plus the retained profits after deducting cash dividends and interest distribution in the current period. The measurement of net risk weighted assets is related to the risk asset structure and growth rate of banks. The back test is carried out according to this algorithm. Taking the listed banks with complete data as an example, the end of 2019 is the base period. After the base period, the error between the measured value and the actual value at the end of 2020 and the end of the third quarter of this year is basically within 30bp. Some banks with relatively stable asset growth and structure have less error.
We calculate the bank's core tier 1 capital gap in the future. In case 1, it is assumed that the company keeps the core tier 1 capital adequacy ratio of the latest period unchanged, Measuring endogenous capital supplement The amount of core tier 1 capital that needs to be supplemented externally after (profit retention). We further assume that scenario 2, considering the banks with low capital adequacy ratio, will increase the core tier 1 capital adequacy ratio to more than 9% in the future. It is predicted that the Listed Small and medium-sized banks will face certain capital gap pressure in the next three years. That is, according to the current asset structure and growth rate, some It is difficult for small and medium-sized banks to maintain or improve the current capital adequacy ratio only by relying on endogenous growth.
Investment suggestion: if you want to win high returns, it is recommended to pay attention to the banks facing greater capital pressure under situation 2, which often have strong initiative to supplement capital. At the same time, combined with the relevant strategies of convertible bond investment, select the banks with relatively low conversion premium rate and strong or significantly improved profitability of the underlying stocks. To sum up, the Bank of Jiangsu convertible bonds, Bank of Hangzhou convertible bonds and Everbright convertible bonds are recommended. In addition, if the bank convertible bonds are purely regarded as the replacement varieties of credit bonds of the same grade, the varieties with relatively high returns can be selected, and the positive stock price fluctuation is small, which has a low impact on the price of convertible bonds, such as Shanghai Bank convertible bonds, Shanghai Pudong Development Bank convertible bonds and CITIC convertible bonds.
Risk tip: the macro economy is weak and the improvement of bank fundamentals is slow; Risk event impact; Policy risk
