Is subordinated debt worth the risk?

Is subordinated debt worth the risk?

Political backlash following the financial crisis has seen banks fined and debt buffers increased. It has also led to a number of new subordinated debt products being used by investors. Anthony Smouha, manager of the GAM Star Credit Opportunities fund, asks if they are worth the risk.

Almost six years have passed since Lehman Brothers was declared bankrupt and triggered the subsequent systemic financial crisis, which required taxpayers’ money for a number of bailouts. There continues to be criticism of the financial institutions and huge fines are still being imposed on the major financial institutions for an array of offences. This ongoing battery reflects a strong political backlash calling for action to be taken in relation to the industry’s rogue institutions. All this seems like bad news for unsecured bond creditors in financial companies. Regulatory change...