European banks are looking to tap the bond markets in the coming weeks in an attempt to secure financing ahead of the results of the stress tests.
Last week was the busiest for bank issuance in the region since mid-April, according to data from Dealogic, with €18.4bn of bonds sold – up nearly fourfold on the previous week’s €4.8bn. Banks including Barclays, BNP Paribas, HSBC and UBS took advantage of improving investor sentiment to lock in long-term funds.
"Those that can are keen to get in ahead of the stress tests. There’s such an overhang of issuance that needs to get done this year that if last week’s deals continue to perform well, you’ll see bank after bank coming to this market,” said Myles Clarke, head of the bond syndicate desk at Royal Bank of Scotland.
Financial institutions were the group most affected by the eurozone sovereign debt crisis, which virtually shut the market for new borrowing for two months. Even now, it is only open to the best-regarded names and many banks have not dared to try to access it.
The hiatus was made worse by the fact that May and June are typically big months for bond issuance ahead of the summer slowdown. Banks generally aim to have completed about two-thirds of their planned bond issuance by the end of June. As August and December are virtually dead, the rest of the year really only consists of the three months from September.
Bankers said market sentiment turned last week after Spain attracted €14bn in orders for €6bn in 10-year bonds, suggesting that investors were once again prepared to buy riskier assets. “It seems to be a case of ‘the window is open, get some funding in, because who knows what September will hold’,” said Suki Mann, head of credit strategy at Société Générale.
Last week saw banks issue a number of five and 10-year bonds – considered long term for the industry, which profits from the difference between short-term borrowing costs and higher interest rates on long-term loans. Following the financial crisis, regulators are pushing banks to use more of this sort of long-term funding.
Rabobank issued €1bn of 15-year bonds while HSBC raised €1.5bn in a 10-year issue. Barclays issued €1.5bn and Intesa Sanpaolo sold €1.25bn of subordinated bonds that can count in regulatory capital calculations.
BNP Paribas, UBS and RBS sold €1bn, €1.75bn and €1.25bn respectively of five-year bonds.
