Credit Suisse, BofA Add to Foreign Bank Bond Surge in Australia
Credit Suisse Adds to Bank Bond Surge in Australia
Adrian Moser/Bloomberg
Credit Suisse, based in Zurich, sold A$600 million of five-year floating-rate notes through its Sydney branch yesterday.
Credit Suisse, based in Zurich, sold A$600 million of five-year floating-rate notes through its Sydney branch yesterday. Photographer: Adrian Moser/Bloomberg
U.S. and European banks had their biggest share of Australian bond sales in more than four years last month, drawn by investor demand as they seek to tap a wider range of global debt markets.
Credit Suisse Group AG, Bank of America Corp. and six other overseas banks raised A$7.9 billion ($7.1 billion), giving U.S. and European lenders 61 percent of total sales, according to data compiled by Bloomberg. That’s the most since they had a 66 percent share with A$7.6 billion of bonds in March 2006.
Royal Bank of Scotland Group Plc and UBS AG sold Australian dollar bonds after posting profits that beat analysts’ expectations and passing stress tests intended to reassure investors amid Europe’s sovereign debt crisis. European banks face “vast” funding needs, Standard & Poor’s said in July, while UBS analysts have estimated that regulatory reforms may force lenders worldwide to raise as much as $375 billion in fresh capital.
“There’s a window of opportunity,” said David Carruthers, Sydney-based senior money manager at AMP Capital Investors Ltd., which manages A$30 billion of fixed-income assets. “Most global banks have reported now so investors have more clarity and confidence on how they’re performing, and the borrowers are trying to diversify their funding to help manage large refinancing requirements in the next one to two years.”
Bank of America, based in Charlotte, North Carolina, sold A$1.2 billion of three-year kangaroo bonds yesterday in an offer that included A$300 million of floating-rate notes priced to yield 210 basis points more than the bank bill swap rate. Kangaroo bonds are local-currency notes sold in Australia by foreign issuers.
‘Seek Diversification’
“The main objective of this transaction was to seek diversification,” said Chad Karpes, Sydney-based director of capital markets at Bank of America’s Australian Merrill Lynch unit. The sale was aimed at investors locally and in Asia, whereas other foreign banks sold notes through Australian units to attract local lenders investing for their own balance sheets, he said.
Credit Suisse, based in Zurich, sold A$600 million of five- year floating-rate notes through its Sydney branch yesterday, paying 158 basis points more than the three-month bank bill swap rate. Credit Suisse spokeswoman Elizabeth Rudall declined to comment.
RBS Sale
RBS, the U.K.’s biggest government-owned bank, paid the highest yield premium of overseas lenders that sold debt through Australian units last month. It priced A$1.5 billion of three- year fixed- and floating-rate bonds to yield 245 basis points more than swaps, a person familiar with the transaction said on Aug. 24.
RBS paid a coupon of 275 basis points more than the bank bill swap rate when it sold three-year notes in June 2009, according to data compiled by Bloomberg.
UBS’s Australian branch raised A$1.25 billion on Aug. 18 from its first bond sale in Australia, selling three-year fixed- and floating-rate notes at a 148 basis-point spread. The yield on its A$750 million of fixed-rate notes, which was 6.445 percent when the notes were sold, was quoted at 6.32 percent at 5 p.m. Sydney time today, according to Australia & New Zealand Banking Group Ltd. prices on Bloomberg.
A BNP Paribas unit sold A$1 billion of three-year bonds at a 105 basis-point spread on Aug. 5, including fixed-rate debt priced to yield 6.08 percent. That’s narrowed to 5.78 percent, ANZ prices show.
The Paris-based lender sold floating-rate three-year notes that pay 145 basis points more than the bank bill swap rate in June last year, Bloomberg data show.
Interest From Asia
“We’re seeing strong domestic demand and also interest from Asian investors,” said Joe Azzam, global head of debt syndicate at National Australia Bank Ltd. “The strong Australian dollar and high yields are attracting money.”
The Australian dollar is the best performer of 16 major currencies tracked by Bloomberg this quarter, gaining 7 percent against its U.S. counterpart. Australian-dollar financial company bonds pay an average yield of 6.5 percent while their U.S. counterparts pay 4 percent, Bank of America Merrill Lynch index data show.
Bonds sold through the Australian branches of offshore lenders are eligible for repurchase agreements with the central bank, making them more attractive to domestic financial institutions, according to AMP’s Carruthers. So-called repo eligibility means lenders who buy the notes can exchange them with the Reserve Bank of Australia for cash.
Demand for the securities may also have grown after the Basel Committee on Banking Supervision, tasked with global banking reform after the collapse of Lehman Brothers Holdings Inc. in 2008, softened some proposed capital and liquidity rules in July. The Australian Prudential Regulation Authority has said local rules will be aligned with the Basel approach.
“The concepts of Basel III have been watered down somewhat, which would have provided some extra comfort” to banks buying notes for their own balance sheets, Carruthers said.
To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net.
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