CaixaBank's investor diversification efforts turned to an upbeat sterling market on Tuesday, with the Spanish lender bringing a heavily oversubscribed £500m Tier 2 that further cemented its presence in the currency.
The October 2033 non-call October 2028 via Barclays, CaixaBank, Credit Suisse and NatWest Markets marked its subordinated debut in the currency, just fresh from pricing an inaugural US$1.25bn senior non-preferred last week.
"Their big focus this year is on currency diversification," a lead on the trade said. "They built out their senior curve first in sterling and are now moving to Tier 2. They've seen what Santander has done and see sterling as a liquid market."
He added that CaixaBank was seeking to build its following with currency-specific funds and away from the big global multi-currency accounts.
The Spanish bank, now the biggest domestic lender in the country since its merger with Bankia in 2021, first brought a £500m 1.5% 5.5NC4.5 senior non-preferred green in 2021. It followed with a £500m 3.5% 6NC5 senior non-preferred in March last year.
Leads started marketing the new transaction, Ba1/BBB–/BBB–/BBB(H), at 390bp area over Gilts, with fair value estimated to be around 350bp–360bp over.
"The fact that this trade is coming more or less flat to where a euro would come shows that they're genuinely looking at this as a diversification play, not an arbitrage one," the lead said.
The diversification play came as the issuer looks to a €1bn Tier 2 coming up for call in July 2023.
The transaction followed on from successful senior trades from Credit Agricole and RCB the previous day and saw books pass £1.3bn.
"The sterling market is in very good shape," another banker said. "There was a lack of supply given what happened post-summer last year, so investors are very keen to buy. More broadly, everything seems to be working and we're getting significant order books which are giving issuers significant price leverage. Investors' view is that returns in fixed income were so negative last year, there's bound to be a rebound, and there's also a sense that credit is quite cheap, while absolute yields are quite attractive."
Still, while recent trades have worked well, bankers argue that the attractive funding conditions in sterling do not stretch to all issuers.
"Euro has rallied so much, but for certain names sterling works," the second banker said. "That tends to be those names which trade on the wider side. There was an arb post-summer last year and it will come through more meaningfully, but right now, euros and dollars are rallying so hard they're hard to beat."
Staying close to home
Unlike CaixaBank, KBC Group stuck to its home currency for a Tier 2. In contrast with its French neighbours that have hammered the market at the start of the year, the Belgian lender was out with its first deal in its domestic market, marketing an expected €500m 10NC5 Tier 2 at mid-swaps plus 250bp area IPTs via Barclays, Bank of America, Commerzbank, Goldman Sachs, KBC and Societe Generale.
"They're one of the tighter trading names in subordinated," the second banker said. "We've had a very strong rally and the question is: does it get much better than this? Maybe, but the balance of risk is that we pause in terms of rally because we've had such a strong move so far this year, it's difficult to see that continue in a straight line."
The iBoxx euro subordinated banks index closed at 209bp on Monday, 12bp tighter than at the start of the year and almost 80bp tighter than at the end of October last year.
A third banker said KBC had started relatively generously given the success of BPCE the previous day. At the 225bp over mid-swaps landing point for the €500m deal, it came around back 15bp of where bankers put fair value, in line with the premium paid by BPCE.