* Intesa, Santander reopen market after seven-month hiatus
* Bank of Cyprus Tier 2 mandate cements risk-on sentiment
By Alice Gledhill
LONDON, Jan 6 (IFR) - Intesa Sanpaolo and Santander seized
on thriving issuance conditions to sell Southern Europe's first
broadly syndicated subordinated bonds since May 2016, signalling
a change in fortunes for the region's lenders.
The banks reopened the euro Additional Tier 1 and Tier 2
markets respectively, a turnaround after benchmark supply
evaporated in the second half of last year as challenging
conditions and unappealing pricing kept mandates on the shelf.
The sea-change in conditions has been such that even Bank of
Cyprus is considering selling a euro Tier 2 that would be its
first public debt sale since bailing in investors in 2013. Such
a deal would be an encouraging sign for the region's smaller,
lower rated lenders.
Bullish sentiment at the start of 2017 provided the catalyst
to unblocking the pipeline and will help the banks build buffers
of loss-absorbing debt to meet new regulatory requirements.
"Credit spreads towards the end of December tightened
nicely," said one syndicate official. "Levels become very
palatable very quickly A lot were priced out, but suddenly
Italian and Spanish credits are looking a lot more likely to
have access to the market."
A Santander 1.5bn 3.25% Tier 2 due 2026, for example,
tightened by 45bp last month to about 240bp over mid-swaps,
while clarity around Banca Monte dei Paschi di Siena, which
urgently needs to raise capital, also provided a boost.
Intesa Sanpaolo proved virtually immune to the troubles in
Italian banking. It priced the first public Italian AT1
benchmark since January 2016, a 1.25bn 7.75% perpetual non-call
10-year (Ba3 /B+/BB-/BB) issue, on 4.5bn of demand despite a
"BMPS has got through about 75% of the saga, which is a
positive result, and everyone thinks the UniCredit rights issue
is going to work," said Matthew Rees, a portfolio manager at
Legal & General Investment Management.
"The tail risk has been massively reduced for Italian
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Renewed market access will come as a relief for banks under
pressure to shore up their balance sheets, and needing to comply
with new global and European rules demanding higher stacks of
Like other European jurisdictions, Spain and Italy are
expected to introduce a new form of senior debt to help build
those buffers, but the requisite legislation is unlikely to be
passed before the second half of this year.
Lenders are expected to prioritise Tier 2 issuance in the
meantime, with CaixaBank a prime candidate after a deal was
rumoured late last year.
"The market would salivate," said the first banker. "It's a
good name, but pays a bit more spread."
However, spreads may still be too high to swallow for
smaller lenders. Banco de Credito Social Cooperativo and Banco
Mare Nostrum were forced to pay 9% coupons for sub-benchmark
Tier 2 trades in recent months, and others may prefer to see
levels retrace further before trying their luck.
The AT1 market looks even more challenging, particularly
where lean capital buffers could see regulators force lenders to
"I don't know if the market is there," said Andres Calzado
Catala, head of Iberia FIG DCM at Nomura. " banks will do
Tier 2 first, and then could look into AT1."
Bank of Cyprus (Caa2/B-) will provide a gauge of investor
sentiment towards Southern Europe's lower rated lenders as it
tries to bring a 10-year non-call five-year after a London
roadshow early next week.
Despite its chequered past, leads reckon there is now
appetite for the credit, which must issue debt to comply with
European rules known as Minimum Requirement for Own Funds and
"The question is, when is the market willing and able to
take them?" said one banker close to the deal. "At the back end
of last year there was clearly volatility, but you can get
things done in Q1 that you can't in Q4, especially for more
Bondholders suffered heavy losses during the Cypriot banking
crisis, but the lender this week repaid in full its 11.4bn
Emergency Liquidity Assistance in what it described as a
"significant milestone" in its journey back to strength.
"It's certainly interesting," said Legal & General's Rees.
"It will be very high yielding and could definitely attract
some faster money. If they are starting to get on the mend, it
could be one of those restructuring stories that makes sense."
(Reporting by Alice Gledhill, editing by Helene Durand, Matthew