Goldman Sachs and JPMorgan are pitching a way to profit from the next financial collapse

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October 12, 2017 4:01 PM

Wall Street giants are now making a market for derivatives which offer investors the chance to bet on or against high risk bank bonds know as AT1.

LONDON — Goldman Sachs and JPMorgan are offering clients a new investment product that gives them a chance to bet on the next banking crisis.

Both Wall Street giants are now making a market for derivatives which offer investors the chance to bet on or against bank bonds known as Additional Tier 1 notes, according to a Bloomberg report.

Additional Tier 1 notes (or AT1 notes) are securities issued by major lenders in the aftermath of the Eurozone debt crisis as a means to protect taxpayers from expensive bail outs in the event of another crisis, with the risk instead borne by investors.

The bonds yield an average of around 4.7%, according to Bloomberg's story. Generally speaking the yield on normal, long-dated debt issued by major banks is less than 1% in the current climate.

As such, AT1s are seen a good way to make a solid return from a pretty safe asset, in a world where low interest rates and huge central bank bond buying programmes have driven down yields. Consequently, AT1s have attracted huge amounts of investment, with a global market of around $150 billion.

That ballooning value has prompted Goldman and JPMorgan's creation of the new derivative which comes in the form of a so-called "total return swap" — which gives investors the ability to hedge increases or decreases in the value of a basket of AT1s from numerous banks.

Citing

The derivatives — which Goldman's co-head of European credit flow trading Manav Gupta told Bloomberg offer "

You can read Bloomberg's full article on AT1 derivatives here.

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