January 5, 2017 / 3:21 PM / 7 months ago

European banks strike while the iron is hot

LONDON, Jan 5 (IFR) - The primary market for European bank debt has got off to its strongest start in years as a barrage of issuers, taking heed from a challenging 2016, makes the most of conducive conditions.

European financials are on track to price more than 34bn-equivalent across euros, sterling and US dollars in the first three days, steaming past the 23.5bn-equivalent raised in the first week of 2016, according to IFR data.

The assault across the covered, senior and subordinated sectors indicates issuers' desire to make the most of conditions while they last given the challenges presented by looming political risk, setting 2017 up as another difficult year.

European banks need a strong start after a stop-start 2016, in what will be a crucial year for building up the new layers of loss-absorbing debt demanded by global and European regulators.

"There has been competition among issuers - they've all got a lot of stuff to do, particularly the French, so there's been a bit of a rush," said one FIG DCM banker.

"And with the market open, and good demand, it's encouraged people to continue with their plans, or to accelerate them."

The market has opened more strongly than many were expecting, with the reappearance of southern European subordinated bank debt testament to that newfound confidence. Intesa and Santander opened the euro Additional Tier 1 and Tier 2 markets respectively on Wednesday.

"We're moving into more uncertain times so it makes a world of sense to take funding off the table," said a second banker.

"New issue premiums are skinny and also valuations have also come in quite significantly."

BBVA for example sold a 1bn 0.625% five-year senior at swaps plus 55bp on Wednesday, the smallest ever coupon for a syndicated Spanish senior bond and well inside the 85bp reoffer of the 1bn Jan 2021 it sold a year ago. That note was bid at 42bp at the open, around 20bp tighter since early December.

TAKING NO CHANCES

Euro covered issuers are proving willing to offer a touch more spread than usual to maximise size, with seven out of the week's ten benchmark tranches in a 1bn size or over.

Six issuers priced a combined 8.75bn in the first two days, prior to another three deals on Thursday - Compagnie de Financement Foncier's 1.5bn Sep 2023 at swaps plus 5bp, Coventry's 500m Jan 2024 at 18bp over and Helaba's 1.25bn five-year at swaps minus 9bp and 750m 10-year at 7bp through.

Activity in the sterling covered market, which is pricing more tightly than euros and dollars, also showed no sign of flagging, with Deutsche Pfandbriefbank and Commonwealth Bank of Australia together taking out another £600m.

In senior, Banque Federative du Credit Mutuel drew more than 3.4bn in orders as it sold a 1.25bn Jan 2022 senior at swaps plus 37bp, while Allianz opened the euro insurance market with a 1bn 2047 non-call 2027 Tier 2 at swaps plus 235bp.

Others spotted the opportunity to reopen old issues - Iceland's Arion to top up its 300m Dec 2021 senior to 500m, and La Banque Postale to sell a 150m tap of its 500m 3% Tier 2 due 2028.

With more banks eager to issue ahead of close periods, issuance is likely to remain elevated - but perhaps not for long.

"I can't believe this pace will continue," said the first banker. "We have a pipeline still, into next week and the end of the month. But I think things will slow down in the middle of next week." (Reporting by Alice Gledhill, editing by Alex Chambers and Julian Baker)

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