Podcast: Banks, bondholders and the macro outlook

Ongoing pressure on banks worldwide, underscored by the takeover of Credit Suisse* by UBS*, raises fresh questions for investors about the health of the sector, the treatment of bondholders and implications for the global economy.

We held a second special live webinar with our clients to discuss this fast-moving story on 21 March, hosted by LGIM’s Chief Investment Officer, Sonja Laud.

Sonja was joined by Colin Reedie, Head of Active Strategies; Christopher Jeffery, Head of Rates & Inflation Strategy; Dan Lustig, Senior Credit Analyst; and Tim Drayson, Head of Economics. Among other things, the panel said:

• Authorities look determined to avoid a 'Lehman moment'; this weekend’s developments suggest they have the tools to do so
• We continue to believe that Credit Suisse* is a unique case, linked to the bank’s profitability, and don’t expect other lenders in Europe to follow suit
• The writedown of AT1 bonds is likely to create a higher risk premium for bank capital, in our view
• We expect to see renewed tightening of lending standards across the US and Europe as a result of this episode; this will probably spark a recession in the second half of 2023
• There’s a mismatch between how equities and credit markets are pricing the macro outlook, with the former suggesting a more benign trajectory
• We believe developed market bond yields may have peaked for the foreseeable future
• We also think the macro context means further stresses will probably emerge in the system; this means better entry points for equity investors are likely, in our view

The webinar was moderated by Max Julius, Head of Content. You can listen to a recording of the webinar on our podcast channel, LGIM Talks, via Apple, Audioboom and Spotify.

*For illustrative purposes only. Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The above information does not constitute a recommendation to buy or sell any security.