* Santander to jump starting gun on Spanish senior
* Spanish lender to introduce contractual clause to bypass
By Alice Gledhill
LONDON, Jan 11 (IFR) - Santander is considering ways to
issue a new type of senior bond well in advance of the requisite
legislation being passed, allowing it to chip away at an
approximate 30bn issuance target over the next two years.
The Spanish bank said on Wednesday that it will issue
16bn-20bn in 2017 and another 12bn-15.5bn in 2018 of
so-called senior non-preferred, set to become a major new asset
class as European banks respond to regulatory demands to beef up
their loss absorbing buffers.
Though the European Commission endorsed the senior
non-preferred format late last year, the legislation permitting
this type of issuance is only in place in France and is not
expected to be passed elsewhere in Europe before the second half
of 2017 at the earliest.
But global systemically important banks (GSIBs) like
Santander - which must meet a global standard known as total
loss-absorbing capacity (TLAC) - cannot necessarily afford to
wait that long, and the lender may use contractual provisions to
"Senior notes would include a contractual status clause
which would contemplate a senior second ranking ('senior
non-preferred') in resolution and insolvency," the issuer wrote
in a presentation.
The senior second ranking status would automatically be
aligned with the Spanish law transposing the Insolvency
It would not be the first time that a European bank has
tried to preempt changes in the regulatory arena. ING last year
sold a Tier 2 bond with an optional redemption allowing it to
flip from the opco to the holdco in anticipation of amendments
to the Dutch resolution framework.
"I think that what Santander is doing is a variation of the
flipper," said one FIG DCM banker.
"Although the European Commission talks about implementation
by mid-2017, I think there are some countries where that may be
a stretch for the domestic legislative timetable, so this
structure would allow banks to crack on earlier where they want
COMING AT A COST?
2017 is already poised to be the year of senior
non-preferred issuance, but Santander's proposal indicates that
this new market could take off more quickly than expected.
UniCredit said in December that it plans to issue senior
non-preferred debt in the coming years, but that issuance would
be "more back-ended" given concerns around potential legislative
delays, for example.
A strong start by the French banks should help quash any
nerves about investor demand, but bankers warn that the buyside
could force Santander to pay up.
"I think the contractual option does work, but it will
probably come at a cost," said another banker.
"The size [they have to do] is another cost - it's a massive
number. But Santander hasn't really used the dollar market much
in the past, so that's a good pocket of demand they haven't
Santander plans to issue 12bn-14bn of 2017's target out of
the main issuing entity, with another 2bn-3bn apiece from
Santander UK and Santander Holdings USA.
Bankers are already pitching similar trades to other lenders
though GSIBs, which have more pressing needs, are the prime
candidates for issuance.
"I think that non-GSIB issuers are more likely to bide their
time and wait for legislation to be approved, which at worst
probably takes a year to implement," said a bank analyst.
(Reporting by Alice Gledhill, editing by Helene Durand, Ian