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Santander Joins UniCredit With Plans to Sell Riskiest Bank Bonds

Banco Santander SA (SAN) joined UniCredit SpA (UCG) in planning to be the first major European lenders to sell contingent capital bonds in more than two months as the riskiest bank debt recovers from a selloff.

The biggest lenders in Spain and Italy hired banks to manage sales of additional Tier 1 notes, according to people familiar with the plans. Average yields on the debt have fallen 53 basis points to 6.34 percent since reaching a six-month high on Aug. 8, Bank of America Merrill Lynch index data show.

“The market has been more volatile during summer but it’s far from closed,” said Harman Dhami, co-head of financial syndicate at Royal Bank of Scotland Group Plc in London. “Cash balances are high and fundamental credit demand remains strong. There hasn’t been supply for some months now, so there are a number of deals to be done in the near term.”

UniCredit and Santander are reopening the market as the European Central Bank completes a review of bank assets before results of stress tests are published in October. Capital raising for smaller lenders in Europe’s periphery may be difficult before the results of the tests are known, said Paul Smillie, a Singapore-based credit analyst at Threadneedle Asset Management Ltd., which oversees about $126 billion.

Photographer: Alessia Pierdomenico/Bloomberg

UniCredit SpA, which debuted $1.25 billion of the notes in March, will begin meeting investors in Europe on Sept. 1, according to the person, who asked not to be identified because they're not authorized to speak about it. Close

UniCredit SpA, which debuted $1.25 billion of the notes in March, will begin meeting... Read More

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Photographer: Alessia Pierdomenico/Bloomberg

UniCredit SpA, which debuted $1.25 billion of the notes in March, will begin meeting investors in Europe on Sept. 1, according to the person, who asked not to be identified because they're not authorized to speak about it.

“You’d expect better investor take-up once the asset quality review means the skeletons are out of their cupboards,” he said in an interview. “There may well be failures from some of the smaller banks.”

Loss Burden

Additional Tier 1 bonds, which are designed to shift the burden of a bank’s losses from taxpayers to investors, have optional interest payments, no set maturity, and can be written down or converted to shares.

Societe Generale SA (GLE) was the last big European lender to issue the securities. The second-biggest French bank raised $1.5 billion from 6 percent notes on June 19, according to data compiled by Bloomberg.

UniCredit, which is planning to sell in euros, hired Bank of America Merrill Lynch, Credit Agricole SA, Credit Suisse Group AG, Deutsche Bank AG and its own investment bank to arrange its second issue of the securities.

Santander, which already has about $3.5 billion of the notes outstanding in dollars and the single currency, hired Credit Suisse, HSBC Plc, SocGen, UBS AG and its own investment bank to manage its sale, also in euros.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editors responsible for this story: Shelley Smith at ssmith118@bloomberg.net Michael Shanahan

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