Leading from the front
The Additional Tier 1 market was thrust unwillingly into the limelight in 2023 as Credit Suisse collapsed in March, taking with it its entire stack of AT1 capital.
The turmoil that followed worried banks across the globe but put Spain’s BBVA in a particularly unenviable position. With the AT1 market shuttered, BBVA had little time to address an upcoming September call date of its €1bn 5.875% AT1, which it had not yet replaced.
As the market stabilised heading into the summer, speculation mounted that BBVA would be among the first to return.
For all the predictions of the AT1 market’s demise in the immediate aftermath of Credit Suisse’s collapse, by June it was clear that European banks would be able to resume issuance. The asset class had been tested through local currency sales, while banks had also been able to sell Tier 2 capital.
What remained to be seen was whether European banks would be able to price major currency deals at similar levels to those before Credit Suisse’s collapse, and to what extent the investor base had diminished.
With so much at stake, the first movers would carry the hopes of the entire banking sector on their shoulders. BBVA – the first European Union bank to issue an AT1 – stepped up as a leader once again.
In the end, BBVA was one of two issuers to reopen the euro AT1 market on June 13, alongside Bank of Cyprus. While its Cypriot peer would also enjoy great success, its €220m trade offered a coupon of 12.5% area at initial price thoughts, putting it in a different world to BBVA.
Instead, it was the Spanish bank’s hotly anticipated trade that would set the template for major European lenders; its success determining whether confidence would be restored to the sector.
Leads Barclays, BBVA, Bank of America, Citigroup, Goldman Sachs and Natixis marketed the perpetual non-call 5.5 offering at IPTs of 8.75% area. Demand peaked at over €3.1bn, allowing a €1bn deal to price at 8.375%.
That coupon was just 12.5bp higher than a €750m perpetual non-call 6.5 AT1 issued by compatriot CaixaBank two weeks before Credit Suisse’s collapse. BBVA also secured a tighter reset spread than on the 5.875% AT1 coming up for call.
While the tightening of the price caused demand to fall by €1.2bn from the peak, the final price and slim new issue premium set the tone for other issuers. Most saw the concession as being just 12.5bp.
BBVA’s reopener would prove to be a crucial step on the market’s path to recovery, leading to a procession of AT1s – including UBS’s return in November, which cumulatively affirmed the product’s viability and importance.
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