ING Groep NV, the biggest Dutch financial services company, is selling 1.5 billion euros ($2.1 billion) of subordinated Tier 2 bonds as average yields on the securities fell to a record low.
The 12-year notes, issued through ING Bank NV, can be bought back after seven years, according to a person familiar with the matter. The average yield on bonds in Bank of America Merrill Lynch’s Euro Financial Subordinated & Lower Tier-2 Index is 2.93 percent.
The deal will bring this month’s issuance of subordinated securities to 6.25 billion euros, approaching the most since 2008, according to data compiled by Societe Generale SA. Banks are bolstering their capital to meet new regulations designed to ensure that their stakeholders take responsibility for losses in future crises.
“If banks don’t issue Tier 2, under the latest regulations they have to top up the buffer with equity and that’s more expensive,” said Hank Calenti, an analyst at Societe Generale in London. “Investors get to pick up a little extra yield than on senior bonds for not much extra risk.”
While Tier 2 bonds offer investors more yield than senior obligations, they are cheaper to issue than equity partly because interest is paid out of pretax profit.
Banks sold 6.5 billion euros of subordinated debt in April 2008, Societe Generale data show, and the Paris-based bank forecasts 45 billion euros of issuance in 2014.
Swedbank AB, Sweden’s largest mortgage lender, yesterday sold 750 million euros of 10-year subordinated subordinated notes. UBS AG, Banco Bilbao Vizcaya Argentaria SA and Raiffeisen Bank International AG have also sold the securities this month.
ING’s notes will yield 225 basis points more than the benchmark mid-swap rate, according to the person.