5 Min Read
* US market swallows US$18.05bn of loss-absorbing debt
* French trio print first US dollar senior non-preferreds
* UK, Swiss banks try out callable holdco structure
By Tom Porter
LONDON, Jan 6 (IFR) - The US dollar market proved more than a match for US$18.05bn of European banks' loss-absorbing debt supply this week, giving a glimpse of the year ahead as banks flock to the deepest bond market to meet new regulatory requirements.
BNP Paribas, Credit Agricole and Societe Generale printed US$5.3bn in the first US dollar senior non-preferred transactions, while Barclays, Lloyds, Santander UK and Credit Suisse raised US$12.75bn in holding company debt.
The US dollar market grew in importance for European banks during 2016 after bouts of volatility all but shut the European market, and is set to play a vital role again in 2017 as banks' currency of choice to help them comply with new regulations.
"The Yankee market has been the standout in how open that has been," said Matthew Rees, portfolio manager at Legal & General Investment Management.
"It will definitely help in terms of the amount of holdco [senior debt] to be issued this year."
The US investor base has proven to be deep and more comfortable with the risks of loss-absorbing debt than its European counterpart.
That depth of demand will be tested more than ever this year, with the 40 largest banks in Europe still some 400bn short of the total loss-absorbing debt they will have to hold by 2022, according to figures from BNP Paribas.
"Dollars gives you an early start, the potential for multi-tranche execution and negligible new issue premium, so what's not to like?" said Miray Muminoglu, co-head of capital markets execution in treasury at Barclays.
"In euros and sterling you may not always be able to get the boxes ticked on all of those. If you want to do fewer trips in larger sizes, dollars is the market to execute that."
Issuance of loss-absorbing instruments will take on new vigour in 2017 now that the fog has started to lift on the quantum and form of debt that Europe's banks must raise in order to avoid future taxpayer bailouts.
The European Commission has given a clearer direction to the region's banks for how they will need to meet minimum requirement for own funds and eligible liabilities (MREL) and total loss-absorbing capacity (TLAC) requirements.
A number of institutions have so far been held back by the pace at which their local legislators have adapted to the demands.
French banks have already demonstrated what regulatory clarity can do for supply after the country's lawmakers approved the creation of a senior non-preferred product late last year.
Credit Agricole opened the market in December with a 1.5bn 10-year, while Societe Generale followed shortly after.
This week, BNP Paribas and Credit Agricole shared the podium for the first deals in US dollars. The former sold US$1.75bn at seven-years, and the latter a US$2.3bn three-parter featuring five-year fixed and floating notes and a 10-year fixed.
Credit Agricole's plan to issue 12bn of senior non-preferred and Tier 2 debt by 2019 is dwarfed by BNP Paribas, which intends to print 30bn of the new-style senior debt alone over that period.
Away from French banks, the US investor base still had appetite for a further US$12.75bn of bail-in-able debt, including the first callable holdco deals from Europe in US dollars.
Barclays, Santander UK and Credit Suisse followed the trend started by US banks last year as a way to meet loss-absorbing debt requirements, adding call options one year before maturity in some tranches.
A US$5bn four-tranche Barclays deal was the standout, featuring 6NC5 fixed and floating, 11NC10 and 30-year tranches.
Santander UK sold a US$1bn 6NC5 deal, while Credit Suisse followed up with US$1.75bn of 6NC5s and US$2.25bn of 11NC10s.
Add in a US$2.75bn dual-tranche five and 10-year holdco senior from Lloyds, and many market participants were getting the feeling Europe's banks are in something of a hurry.
"It's not just the upcoming inauguration [of Trump as US President] - it's also the fact that there are a number of important political events in Europe this year," said one New York-based syndicate banker.
"People are taking the view that even if it doesn't get worse, it can't get much better, and there are potential catalysts for market widening." (Reporting by Tom Porter, Additional reporting by Alice Gledhill and Will Caiger-Smith, editing by Helene Durand, Julian Baker)