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Banks' Quarter Trillion-Euro Refinancing Spurs Jump in European Bond Sales
Commerzbank AG and UniCredit SpA led 8.5 billion euros ($10.8 billion) of bank bond sales today, the most in five weeks, as lenders rushed to refinance almost a quarter-trillion euros of debt due this year.
Commerzbank, Germany’s second-biggest lender, raised 750 million euros from 10-year senior, unsecured bonds, while Italy’s No. 1 lender UniCredit sold 1 billion euros of two-year floating-rate notes, according to two bankers involved in the transactions, who declined to be identified.
Financial firms in Europe have 240 billion euros of debt maturing by year-end, and 765 billion euros next year, according to Barclays Capital. Banks are selling bonds as the cost of insuring their debt against default rose by the most in a month on speculation the Basel Committee on Banking Supervision will propose higher capital requirements after it meets today.
“The market knew that September would be a massive month for bank supply because the capital raising that needs to be done is enormous,” said Stuart Thomson, international fixed- income fund manager at Glasgow based Ignis Asset Management, which manages about 70 billion pounds ($100 billion).
Financial issuers have raised 417 billion euros from debt sales this year, including covered bonds and German Pfandbriefe, securities backed by mortgages or public-sector loans that are guaranteed by the issuer, according to data compiled by Bloomberg.
Difficult Prediction
For the weaker bank names that must refinance debt this year, “it’s difficult to predict what the reception for those will be like,” said Juan Esteban Valencia, credit strategist at Societe Generale CIB in London.
The Basel Committee is readying new capital and liquidity rules for world leaders to agree on when the Group of 20 meets in Seoul in November. Germany’s 10 biggest lenders, including Deutsche Bank AG and Commerzbank, may need about 105 billion euros in fresh capital because of new regulations, the Association of German Banks said yesterday.
The Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers rose for a second day, climbing 9 basis points to 138.5, according to JPMorgan Chase & Co. at 4:20 p.m. in London. Investors use the contracts to bet on or hedge against a borrower missing debt payments, and an increase signals deterioration in perceptions of credit quality.
Tighter Yields
The extra yield investors demand to hold European bank bonds more than the benchmark swap rate is 177 basis points, a 30 basis-point drop from the June peak after markets were roiled on concerns about the creditworthiness of the region’s most indebted countries, according to Bank of America Merrill Lynch’s index of bank bonds with an average maturity of 4.6 years. A basis point is 0.01 of a percentage point.
Commerzbank issued its notes at a yield of 150 basis points more than the swap rate, said the banker involved in the sale. UniCredit in Milan offered its notes at a spread of 95 basis points more than the euro interbank offered rate, said another banker.
Abbey National Treasury Services Plc, a unit of Spain’s Banco Santander SA, raised 400 million pounds from selling seven-year, senior unsecured bonds at 205 basis points more than U.K. government debt, a banker in the transaction said. Spanish savings bank Caja Madrid issued 1.25 billion euros from three- year covered bonds at 220 basis points more than swaps, a record spread for the debt.
“The market is looking at the differential between banks,” said Ignis’s Thomson. “The ones that can just do the financing get the Nike swoosh with investors, while the ones that struggle don’t.”
To contact the reporter on this story: Sonja Cheung in London scheung58@bloomberg.net; Kate Haywood in London at khaywood@bloomberg.net
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