Italian banks stepped up to the plate on Monday, looking to take advantage of the new year issuance window while the prospect of political uncertainty looms in the background, with Mediobanca landing a €500m senior preferred with a relatively modest new issue premium while Credito Emiliano lines up a green bond.
Last week, €13.25bn of euro-denominated FIG issuance was concentrated into just Tuesday and Wednesday as the window was subsequently cut short by public holidays in parts of Europe.
With the calendar clear this week, market participants are expecting heavy supply before European banks start entering their blackout periods next week and on Monday new flavours were on offer, as the single currency market welcomed its first FIG deals of the year from Italy and Canada.
Mediobanca's deal was the first test of appetite for Italian bank debt in the run up to the country's presidential election, which will be held on January 24.
The prospect of current prime minister Mario Draghi being chosen as president has raised concerns over a return of political instability, as his departure could trigger an early general election.
"The upcoming election was one of the drivers," said a banker at one of the leads. "On one hand you have to consider that the January window is usually much more supportive and investors are starting from scratch with money available to invest, and on the other hand you have to take into the account the expected noise that could arise because of the presidential election."
"There may be some uncertainty close to the elections but not as of now. We haven't heard any concerns in this respect today and as you have seen from the performance of the transaction, it is perfectly in line with the other supply that is on the screens today."
The €500m (no-grow) July 2029 non-call 2028 senior preferred was marketed with initial price thoughts of mid-swaps plus 110bp area.
Leads BBVA, Mediobanca, Natixis, Societe Generale and UniCredit launched the deal at 90bp on the back of more than €1.1bn of orders (pre-rec).
The final book stood at €875m.
"In terms of book size it is okay, maybe not a blowout in terms of momentum and investor appetite, but certainly good enough for a €500m print, allowing them to price relatively close to fair value," said a banker away from the deal.
Most bankers saw fair value for the deal in the mid 80s, extrapolating from Mediobanca's curve. That implied a final new issue premium of around 5bp.
Bankers suggested the deal's expected ratings of Baa1/BBB/BBB helped make that possible, as it offered a relatively rare opportunity for investment-grade funds to pick-up Italian senior paper.
Technical support
Credito Emiliano is set to bring further Italian supply later this week in the form of an inaugural green senior preferred. The six-year non-call five euro benchmark will follow investor meetings to be held on Monday and Tuesday and arranged by lead managers Barclays, Credit Agricole, Natixis and Societe Generale.
Bankers expect other Italian issuers to tap the market soon, motivated partly by the widely-held expectations that credit spreads will widen and that conditions will become more volatile this year.
However, a DCM banker said Italian banks' funding programmes will mostly be focused on refinancing maturing debt this year and said that even with the potential end of the ECB's TLTROs this year, issuance volumes will be relatively low. That should provide some technical support to Italian spreads if and when markets deteriorate, he said.
"Particularly if you think about AT1, Tier 2 and even senior non-preferred, Italian banks still offer a decent premium to most of their Northern European competitors, therefore I suspect Intesa, UniCredit, the big banks are unlikely to move too much because people see value in those levels," he said.
TD tests lower bounds
Toronto-Dominion, meanwhile, was making a rare foray into the euro market, with leads Barclays, Danske Bank, Deutsche Bank, NatWest Markets, TD and UniCredit offering investors a five-year senior deal with IPTs of mid-swaps plus 60bp/65bp.
"I think Mediobanca and TD are both good examples of some of the tougher trades out there, Mediobanca given the elections but also TD because the euro senior market is not one they tend to come to often and given the outright spread level it's not something for everyone," said a fourth banker. "That said, they've got a good first book update."
Demand was reported above €1bn after just over 2 hours and 15 minutes of bookbuilding.
The leads ultimately went on to fix the spread at 42bp and the size at €1bn. The final book stood at €1.25bn, having peaked above €1.9bn.
"It's a good print and it looks like a high single digit concession, confirming that there is appetite for tighter names and also from non-euro regions," said the second banker.
The deal, which is expected to be rated A1/A (Moody's/S&P), is TD's first senior benchmark in the single currency since April 2019, when it sold a 0.375% April 2024 transaction now bid at 25bp. Bankers therefore saw fair value in the mid 30s.
While Canadian banks have been prolific issuers of euro-denominated covered bonds in recent years, TD's deal is only the second senior euro benchmark from Canada since 2019, following a €750m November 2028 transaction for Bank of Nova Scotia last August.
Elsewhere on Monday, BFCM landed a €2bn dual tranche SNP transaction, following similar albeit smaller deals from French peers BPCE and Credit Agricole last week, and two members of the Santander group concurrently hit different markets, with Santander UK printing a £500m seven-year non-call six holdco senior while Santander Consumer Finance sold a €750m five-year senior preferred.