Wells Fargo Narrows Gap to Aussie Banks in Down Under Bond Sale

Wells Fargo & Co. (WFC) is getting as good a deal as Australia’s more highly-rated lenders in the nation’s bond market as hunger for credit cuts borrowing costs.

The world’s most valuable bank priced A$900 million ($836 million) of five-year securities to yield 85 basis points more than swap rates, according to an e-mailed statement from Westpac Banking Corp., which helped manage the sale. That compares with 82 basis points for a similar tenor sale last month by Australia & New Zealand Banking Group Ltd. and 85 basis points for Commonwealth Bank of Australia.

The deal was embraced by fixed-income buyers as declining yields in Australia and globally have fueled demand for credit and compressed spreads. The average yield premium over the swap rate on bank bonds in the South Pacific nation last month fell as low as 90 basis points, the least in more than six years, according to a Bank of America Merrill Lynch index.

“They don’t issue very often here, and they’re recognized as one of the stronger bank credits coming out of the U.S., so that helps drive demand,” said Apoorva Tandon, a Sydney-based director in the debt syndicate at ANZ, which was also involved with the deal. “The spread was very close to what the major local banks have achieved in terms of what they’ve issued recently.”

Strong Participation

In addition to ANZ and Westpac, the sale was jointly managed by CBA, National Australia Bank Ltd. and Wells Fargo itself. Today’s deal, which included a A$400 million fixed-rate portion and A$500 million of floating-rate securities, attracted more than 100 orders totaling about A$1.2 billion, said ANZ.

“This deal isn’t repo eligible because it’s a foreign bank and not issued out of a domestic branch, so you don’t get the volume of demand from liquidity books,” Peter Dalton, head of the debt syndicate at Westpac, said by phone. “But in terms of real money accounts and offshore buyers there was strong participation.”

Wells Fargo’s previous benchmark issue of five-year Aussie dollar notes in January 2013 was sold at a spread of 100 basis points, compared with transactions that month by both Westpac and CBA at 95 basis points.

The San Francisco-based lender is rated A2 at Moody’s Investors Service, three levels below the biggest Australian banks, and A+ at Standard & Poor’s, one step lower than the Australian lenders. Fitch Ratings has it equal with the four largest Aussie banks at AA-.

Pricing in the credit-default swap market indicates that Wells Fargo is almost on par with its Australian counterparts. The lender’s CDS were at 51.5 basis points yesterday, while the average for the four Australian lenders was 51.7. The cost of protecting its debt has climbed from a more than six-year low of 34 basis points on June 6, while the CDS on Australia’s lenders have narrowed from this year’s high of 93 on Jan. 27.

Previous Sales

Wells Fargo last sold bonds in Australia in May 2013, when it increased its September 2022 line by A$150 million, while a five-year transaction last year raised A$900 million.

The biggest U.S. home lender, led by Chief Executive Officer John Stumpf, last month said second-quarter net income increased 3.8 percent to $5.73 billion on lower credit costs even as revenue declined.

“There hasn’t been a lot of supply generally in the Australian bond market, so that’s been quite supportive for issuance,” ANZ’s Tandon said in a phone interview. “When you look at how Wells Fargo is performing, the trajectory of the U.S. banking sector as a whole and the kind of spreads they’re funding at in U.S. dollars and other markets, then the Australian dollar notes look pretty attractive to investors.”

To contact the reporter on this story: Benjamin Purvis in Sydney at bpurvis@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net Chris Bourke, Edward Johnson

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