BNP Paribas Plans to Start Market for New Type of Bank Debt

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  • Bank to sell Tier 3 bonds after French parliament passes law
  • Differing rules in European countries complicate investments

BNP Paribas SA plans to sell as much as 3 billion euros ($3.4 billion) of a new type of bank bond this year, starting as soon as October.

France’s largest bank will sell so-called Tier 3 debt, which will sit between unsecured senior and subordinated notes, after the French parliament passes a law facilitating the new asset class, according to a spokeswoman. The bank plans to issue about 10 billion euros of notes annually in 2017 and 2018, she said.

European countries have taken different approaches to meet post-crisis standards to protect taxpayers, creating challenges for investors comparing bank debt across borders. The European Central Bank has flagged risks stemming from differing national rules, saying in a February report that a more uniform regional approach would avoid market fragmentation and ease supervision.

France’s Tier 3 bonds are designed to smooth the wind-down process by providing legal certainty that the instruments are eligible to absorb losses. That contrasts with Germany, which subordinated existing senior unsecured debt to deposits, derivatives and structured notes.

BNP Paribas will be the first and biggest bank to issue senior non-preferred notes, according to Roger Francis, an analyst at Mizuho International Plc in London. Societe Generale SA, France’s second-largest bank, will enter soon after and need less capital, he said. 

Credit Agricole SA, France’s third-largest bank, said in May that it plans to replace some maturing junior debt with the new notes.

Creation of the bonds may be delayed if the law, which is expected to be voted on in the next month, is postponed or if credit markets worsen, said Eric Cherpion, head of global bond syndicate at Societe Generale.

“We need the law to be on the books and then good market conditions later in the year,” he said.