FIG issuers capitalised on investors' enthusiasm for duration and appetite for risk on Tuesday, as Banco Santander breathed new life into the supply-starved euro bank capital market with a blowout 10.25-year non-call 5.25 Tier 2, while HSBC and BNP Paribas continued the revival of the long end of the euro senior market.
Santander's deal – which came on a busy day in the market – is the first euro-denominated bank capital issuance since the sector was rocked by the writedown of Credit Suisse's Additional Tier 1s just under two months ago.
"It is good to see the beta of trades going higher, with the pipeline filling up with medium-to-higher-beta senior, another Icelandic trade and now Tier 2," said a banker.
Santander marketed the August 2033 non-call 2028 Tier 2 at initial price thoughts of mid-swaps plus 310bp area, via bookrunners Barclays, Bank of America, BNP Paribas, Deutsche Bank, Natixis, Nomura, JP Morgan and Santander.
The leads ultimately launched a €1.5bn deal at 285bp as books surpassed €4.25bn. The final book stood above €4bn.
Santander had not issued single currency Tier 2 debt since October 2020 and has historically issued bullets rather than callables. But extrapolating from the bank's relatively old bullets and adjusting for a call premium, or working off the more recent callable Tier 2s of rival CaixaBank, led bankers to spot the new issue's fair value at around 260bp-265bp.
Bankers said the starting new issue concession of some 50bp was relatively cautious, but understandably so for a reopener and given Santander's evident ambition to print a large size.
To raise €1.5bn while trimming the premium down to around 20bp-25bp – which bankers noted was only slightly higher than the concessions offered by many recent senior unsecured trades – was considered to be an impressive result.
The Spanish lender is the first to test investor appetite for European subordinated bank bonds since Swiss financial markets regulator Finma wrote Credit Suisse's AT1 stack down to zero as part of the ailing bank's rescue by rival UBS in mid-March. The regulator turned the established hierarchy of losses upside down by giving holders of CS's equity shares in UBS, and the decision prompted legal challenges from bondholders.
In the immediate aftermath, banks' subordinated bonds – especially AT1s but also Tier 2s – sold off dramatically. Sub debt prices quickly regained some of the losses after regulators in other jurisdictions issued statements that reassured investors.
Market participants had suggested investors would be receptive to fresh bank Tier 2 supply, after Generali, AXA and NN Group showed the depth of investor appetite for insurance subordinated paper in recent weeks. But banks have been hesitant to resume issuance of their riskiest products and pay the elevated levels required. The last bank Tier 2 in the single currency was a €200m 10.25% 10.25-year non-call 5.25 for Hellenic Bank on March 7.
"Yes, CS was more an AT1 story, but clearly sub debt also widened, and for all issuers we are wider than we were pre-CS," said the banker.
"But appetite for the product has not diminished ... the request from investors has been to go down the capital structure or down in ratings and now also to go longer in duration."
Duration back on the menu
HSBC and BNP Paribas reaped the rewards of tapping into that longer dated demand as they shopped a 10-year non-call nine holdco senior and a 10-year senior preferred, respectively.
HSBC printed €1.75bn at 190bp, down from IPTs of 210bp area, with its book peaking at €3.4bn (pre-rec). The final book stood at €2.75bn. HSBC, CIBC, ING, Natixis, Santander and SEB ran the deal.
BNP Paribas' self-led €1.25bn deal was launched at 118bp, inside IPTs of 140bp area, on the back of peak demand of more than €2bn. The final book stood at €1.6bn. The french lender priced a €1.5bn five-year covered on the same day.
The deals came after two-tranche senior trades from ING and Intesa Sanpaolo on Monday highlighted demand for duration, as an 11-year non-call 10 for ING and a seven-year for Intesa both attracted more demand than shorter-dated tranches.
Bankers said the lack of long-end supply and investors' increased confidence in the direction and stability of rates following last week's central bank meetings were driving demand. ING's offering was the first euro bank senior bond with a tenor of 10 years or longer since February 27.
"We saw longer tranches outperforming ... and a bit of duration at this point in the cycle, when rates are flattening off, makes sense," said a banker at one of HSBC's leads.
Both HSBC and BNP Paribas were judged to have paid concessions in the context of 15bp–20bp.
Elsewhere on Tuesday, two Dutch banks offered shorter green senior bonds.
ABN AMRO landed a £750m three-year green senior preferred at 160bp over Gilts, down from IPTs of 175bp area, with demand coming in above £1.25bn. ABN AMRO, Goldman Sachs, HSBC and Lloyds were the leads.
De Volksbank priced a €500m no-grow 4.5-year green senior non-preferred at 170bp over mid-swaps, inside IPTs of 180bp area, drawing more than €625m of demand (excluding JLMs). BNP Paribas, Bank of America, Commerzbank, Rabobank and Santander had the mandate.
Iceland's Arion Banki offered higher-yielding senior paper, pulling in more than €690m of orders to a €300m no-grow three-year senior preferred priced at 7.25%, via Barclays, Deutsche and UBS.
Adds results of Santander Tier 2 and other trades, colour and comments throughout