Saudi Aramco Base Oil Company, known as Luberef, has guided towards top-of-the-range pricing for its up to SR4.95bn (US$1.32bn) Tadawul IPO on the penultimate day of bookbuilding. Books are multiple times covered for the offering of just over 50m shares at the top of the SR91–SR99 range. The secondary share offering represents 29.7% of the company, with all shares coming from Jadwa Industrial Investment Company. Top-end pricing had been anticipated as the float was covered at the top of the range on the first day of bookbuilding. The institutional bookbuild wraps up at 12pm locally on Friday. A retail offer for up to 25% of the shares runs from December 14–18, with a trading date yet to be set. Citigroup, HSBC, Morgan Stanley and SNB Capital are joint bookrunners.
The proportion of loans in UK buy-to-let RMBS pools that are in arrears has started to climb in the past few months, in a sign that landlords are struggling with the economic climate and rising mortgage rates. The percentage in arrears of the collateral pool of one deal, Towd Point Mortgage Funding 2019 – Auburn 13, reached 5.9% in October, having risen steadily from 4.2% in September and 3.6% in August, according to a performance report published by Fitch on Monday. That compares to a previous peak of 4.5% in April 2020, amid the initial shock of the Covid-19 pandemic. Delinquency rates have been similarly creeping up in another transaction, TPMF 2018 – Auburn 12, which, like Auburn 13, is sponsored by Cerberus Capital Management. Total arrears for this deal reached 5.32% in October, according to a recent report from Moody's. The spike in arrears comes despite buy-to-let mortgage borrowers typically enjoying longer fixed-rate periods than owner-occupiers, which should be shielding them from rate rises in the short term. This means that the performance issues could get worse as more landlords roll off their fixed rate deals in the coming years. “Although loans with a fixed-rate duration of more than three years are partially better off now, they may face the brunt of higher interest rates in the medium term once their fixed-rate periods end, unless interest rates decline,” wrote analysts at DBRS in a report published on Thursday. Buy-to-let borrowers could try to offset higher mortgage costs by raising rents, but may find this tricky due to the financial situation of many of their tenants, the analysts added. Loans to landlords are also potentially more at risk from an expected fall in property prices, as they are usually interest-only, meaning loan-to-value ratios could rise. “It’s very important what’s going to happen there,” said an ABS trader whose desk had recently sold its positions in the two TPMF transactions. “This is just the beginning.” Notwithstanding the rise in delinquencies, spreads on UK BTL bonds have recently tightened in line with the broader ABS market, owing to a lack of supply in both the primary and secondary markets, according to the trader. The senior tranches of the two TPMF deals have been trading at a discount margin of about 180bp-200bp over Sonia, calculated on the assumption that they would not be called at their first optional redemption dates, the trader said. TPMF 2019- Auburn 13 was not called on its FORD in October and is therefore paying step-up coupons. “The [option holders] will continue to explore a refinancing and the redemption of the Notes post-FORD on a subsequent Interest Payment Date in due course,” investors were told on September 29. The FORD for TPMF 2018 – Auburn 12 falls in February of next year.
Pushing the development of digital issuance in Germany, KfW has printed the first bond that uses the country’s new law allowing for totally digital paper, the issuer has said. Like most digital bonds up to this point, the print was a small experimental issue. Deutsche Bank was the sole arranger of the €20m 2.381% two-year transaction. "As one of the world's largest capital market issuers, innovation in the area of our refinancing is important to us in order to improve efficiency and reduce operating risks and transaction costs," said Melanie Kehr, a member of KfW’s executive board group, explaining why the German agency had decided to explore the technology. The bond makes use of a new piece of legislation enabling digital bonds, as more jurisdictions gear up to allow the issuance of fixed income products without a physical manifestation. Germany passed a law last year, titled the Electronic Securities Act, that allows for paperless digital issuance. The German development bank's deal uses that law for the first time, the issuer said. The next step Looking to further its efforts in the new product, KfW said it is “examining how further elements of the issuance process can be digitised” following the transaction. It emphasised that liquidity, a high priority for investors this year in response to the rapidly changing markets, “should always be taken into account”. Digital prints via Clearstream’s platform for digital products, dubbed D7, are meant to shorten the issuance process to minutes, a release for the new issue said, saving time, effort and processing costs. The inclusion of “decentral capabilities” is the next step for the platform, the release read, as well as offering the service in other jurisdictions such as Luxembourg. KfW’s deal is only the latest experiment in digital bonds, which promise to make execution faster, cheaper and more liquid. The features the product's proponents point to include the automation some processes and improved transparency. Previously, the German agency simulated a commercial paper offering using distributed ledger technology. In 2017, it priced a €100,000 five-day CP issue via Commerzbank, which sold it to MEAG. It settled without a paying agent or a clearing system. The European Investment Bank has also been developing its own digital bonds, printing its second digital euro bond at the start of December. Goldman Sachs, Santander and Societe Generale priced the €100m two-year. That transaction used a private blockchain ledger on a platform developed by Goldman Sachs. Like KfW’s deal, EIB’s latest digital bond used a new law, but in Luxembourg.
Pushing the development of digital issuance in Germany, KfW has printed the first bond that uses the country’s new law allowing for totally digital paper, the issuer has said. Like most digital bonds up to this point, the print was a small experimental issue. Deutsche Bank was the sole arranger of the €20m 2.381% two-year transaction. "As one of the world's largest capital market issuers, innovation in the area of our refinancing is important to us in order to improve efficiency and reduce operating risks and transaction costs," said Melanie Kehr, a member of KfW’s executive board group, explaining why the German agency had decided to explore the technology. The bond makes use of a new piece of legislation enabling digital bonds, as more jurisdictions gear up to allow the issuance of fixed income products without a physical manifestation. Germany passed a law last year, titled the Electronic Securities Act, that allows for paperless digital issuance. The German development bank's deal uses that law for the first time, the issuer said. The next step Looking to further its efforts in the new product, KfW said it is “examining how further elements of the issuance process can be digitised” following the transaction. It emphasised that liquidity, a high priority for investors this year in response to the rapidly changing markets, “should always be taken into account”. Digital prints via Clearstream’s platform for digital products, dubbed D7, are meant to shorten the issuance process to minutes, a release for the new issue said, saving time, effort and processing costs. The inclusion of “decentral capabilities” is the next step for the platform, the release read, as well as offering the service in other jurisdictions such as Luxembourg. KfW’s deal is only the latest experiment in digital bonds, which promise to make execution faster, cheaper and more liquid. The features the product's proponents point to include the automation some processes and improved transparency. Previously, the German agency simulated a commercial paper offering using distributed ledger technology. In 2017, it priced a €100,000 five-day CP issue via Commerzbank, which sold it to MEAG. It settled without a paying agent or a clearing system. The European Investment Bank has also been developing its own digital bonds, printing its second digital euro bond at the start of December. Goldman Sachs, Santander and Societe Generale priced the €100m two-year. That transaction used a private blockchain ledger on a platform developed by Goldman Sachs. Like KfW’s deal, EIB’s latest digital bond used a new law, but in Luxembourg.
Germany, France, the Netherlands and other countries allowed banks, trading firms and fund managers to set up units in the European Union after Brexit that outsourced much of their activity and with limited senior people, calling into question how much of their business relocated to the EU. That is the finding of a report released on Thursday by the European Securities and Markets Authority, the independent EU watchdog for financial markets. ESMA said the approach of national supervisors was inconsistent and “allowed for an extensive use of outsourcing/delegation arrangements, and in some cases for limited technical and human resources to be relocated”, according to a peer review committee. “These findings put into question whether an adequate part of the activities have actually relocated into the EU and how autonomous and independent the relocated entities are,” ESMA said in a report. In the run-up to and after the UK left the EU at the end of January 2020, many firms were slow to move their EU operations away from London, and some still may not have fully done so. The Covid pandemic contributed to the slow pace, and supervisors recognised this. But the EU is now taking a harder line to prevent so-called “empty shell” operations and ensure new hubs in the bloc have enough senior staff, activity and controls. The European Central Bank in May said a "desks mapping review" found 21% of trading desks it had assessed did not meet requirements and it would take targeted supervisory action. That ECB review targeted the operations of eight major international banks, but the ESMA report was broader and said shortcomings were most apparent for supervision of smaller firms. ESMA said there has been extensive outsourcing of activities, and supervisors should “set in place monitoring strategies regarding relocated trading venues with a view to establish a more balanced repartition between activities performed outside the EU and directly in the EU”. It said trading venues are relying heavily on technical support from their group for the performance of key functions, and supervisors should challenge firms more in this regard. ESMA assessed whether firms’ governance was good enough and if they were meeting substance requirements, for companies providing investment services and activities (MiFID firms); trading venues; and fund managers. A peer review assessed firms in the busiest countries, which included Ireland for each area, Germany and Cyprus for MiFID firms, France and the Netherlands for trading and fund managers, and Luxembourg for fund managers. All the supervisors for trading venues need to better monitor the extent of outsourcing, including in terms of number of staff and percentage of revenue that is paid back for the performance of outsourced activities to better balance activities performed outside and within the EU. “Outsourcing should not be considered as an inevitable outcome for trading venues that belong to large international groups and NCAs (national supervisors) should dedicate more efforts on convincing relocating entities to have more activities being relocated,” the report said. France and the Netherlands should set clearer minimum requirements for trading venues for their governance structure, including regarding the “dual-hatting” of roles, time commitment and functional reporting lines, the report said. It said Germany needs to more thoroughly assess outsourcing arrangements of MiFID firms there, and all supervisors for fund managers should introduce a more systematic and thorough approach to reviewing potential conflicts of interest. ESMA said although Brexit was a one-off event, there were some general lessons for supervisors. “The evolving business models of entities across all industry sectors (eg, increasing reliance on technology) and the consequences in terms of groups’ organisation, governance, outsourcing and staffin
Citigroup and Bank of America expect the surge in fixed income currency and commodity trading that lifted bank revenue through most of 2022 will continue in the fourth quarter, with trading revenue rising 10% to 20%. The bad news is that the steep slump in investment banking – encompassing debt and equity underwriting and advisory – will continue, with revenue from the segment likely falling about 60% in the fourth quarter, according to the US banks. Speaking at an investor conference today, Citigroup Chief Executive Jane Fraser said the bank is hoping for a 10% increase in its markets revenue year on year in the fourth quarter “based on what we've seen in October, November.” The markets group includes both FICC and equity trading. A year ago, Citi reported markets revenue of US$3.3bn. If the trends in the quarter hold, the bank should report markets revenue around US$3.65bn, according to IFR calculations. Fraser offered a caveat, however. “December is always an interesting month in the market,” she said. Citi has had to increase its regulatory capital this year after results of the Federal Reserve’s stress test in June pointed to the need for a stronger buffer against a severe economic downturn. That could impact the bank’s trading performance. On the investment banking side, Fraser said she expects year-over-year revenue for the quarter to be down about 60% – roughly in line with its peers. “Investment banking is having a tougher go of it, and we have not seen wallet recover in the capital markets, the way I think some of us had hoped,” she said. Speaking a day earlier, BofA chief executive Brian Moynihan said investment banking revenue could be down 55% to 60% in the fourth quarter at the Charlotte, North Carolina-based lender. Investment banking revenue was strong heading into 2022 but struggled considerably in the last three quarters for top US banks. Given the currently strong deal pipeline, however, Moynihan said he expects activity in the segment to return to pre-pandemic levels. “But the pipelines are there to open back up as long as we get some stability in market,” Moynihan said yesterday. In trading, BofA is expecting FICC revenue to surge as much as 20% in the fourth quarter compared to the year-ago quarter. Revenue form equity trading is likely to be flat, he said. That would put Q4 FICC revenue at roughly US$1.9bn, if the trends hold through the end of December, IFR calculations show. “Right now, knock on wood, it will be the highest fourth quarter we've had that we can remember,” Moynihan said. Total markets revenue – FICC and equity trading – is on track to come in at roughly US$3.25bn at BofA, according to IFR calculations.
Germany, France, the Netherlands and other countries allowed banks, trading firms and fund managers to set up units in the European Union after Brexit that outsourced much of their activity and with limited senior people, calling into question how much of their business relocated to the EU. That is the finding of a report released on Thursday by the European Securities and Markets Authority, the independent EU watchdog for financial markets. ESMA said the approach of national supervisors was inconsistent and “allowed for an extensive use of outsourcing/delegation arrangements, and in some cases for limited technical and human resources to be relocated”, according to a peer review committee. “These findings put into question whether an adequate part of the activities have actually relocated into the EU and how autonomous and independent the relocated entities are,” ESMA said in a report. In the run-up to and after the UK left the EU at the end of January 2020, many firms were slow to move their EU operations away from London, and some still may not have fully done so. The Covid pandemic contributed to the slow pace, and supervisors recognised this. But the EU is now taking a harder line to prevent so-called “empty shell” operations and ensure new hubs in the bloc have enough senior staff, activity and controls. The European Central Bank in May said a "desks mapping review" found 21% of trading desks it had assessed did not meet requirements and it would take targeted supervisory action. That ECB review targeted the operations of eight major international banks, but the ESMA report was broader and said shortcomings were most apparent for supervision of smaller firms. ESMA said there has been extensive outsourcing of activities, and supervisors should “set in place monitoring strategies regarding relocated trading venues with a view to establish a more balanced repartition between activities performed outside the EU and directly in the EU”. It said trading venues are relying heavily on technical support from their group for the performance of key functions, and supervisors should challenge firms more in this regard. ESMA assessed whether firms’ governance was good enough and if they were meeting substance requirements, for companies providing investment services and activities (MiFID firms); trading venues; and fund managers. A peer review assessed firms in the busiest countries, which included Ireland for each area, Germany and Cyprus for MiFID firms, France and the Netherlands for trading and fund managers, and Luxembourg for fund managers. All the supervisors for trading venues need to better monitor the extent of outsourcing, including in terms of number of staff and percentage of revenue that is paid back for the performance of outsourced activities to better balance activities performed outside and within the EU. “Outsourcing should not be considered as an inevitable outcome for trading venues that belong to large international groups and NCAs (national supervisors) should dedicate more efforts on convincing relocating entities to have more activities being relocated,” the report said. France and the Netherlands should set clearer minimum requirements for trading venues for their governance structure, including regarding the “dual-hatting” of roles, time commitment and functional reporting lines, the report said. It said Germany needs to more thoroughly assess outsourcing arrangements of MiFID firms there, and all supervisors for fund managers should introduce a more systematic and thorough approach to reviewing potential conflicts of interest. ESMA said although Brexit was a one-off event, there were some general lessons for supervisors. “The evolving business models of entities across all industry sectors (eg, increasing reliance on technology) and the consequences in terms of groups’ organisation, governance, outsourcing and staffin
BPCE has priced a ¥70.7bn (US$517m) seven-tranche Samurai bond offering, with more than 70% of demand concentrated in the short to mid-term senior tranches as Japanese investors opt for shorter maturities amid market volatility. Japanese investors were wary of the rapid tightening of spreads in Europe. That move in spreads could have allowed BPCE to offer tighter pricing than Credit Agricole did last week for its bonds, according to a banker on the deal, but some investors balked. In addition, this was BPCE's second Samurai offering of the year, having raised ¥114.4bn in July, and some investors were no longer able to take additional paper from the same issuer. However, the French bank was in no need to raise a large amount. A second banker on the deal said BPCE had earlier already raised sufficient funds for the year in anticipation of a rise in funding costs and that the latest Samurai deal was pre-funding for 2023. Still, the bank tried to satisfy Japanese investors' needs as much as it could by issuing multiple tranches, even though some of them drew small demand. BPCE printed a ¥29.6bn 0.899% three-year senior preferred tranche at 70bp over Tonar mid-swaps, a ¥21.7bn 1.048% five-year SP at 75bp over and a ¥1.5bn 1.207% seven-year SP at 78bp over. A ¥2.5bn 1.578% six-year non-call five senior non-preferred tranche priced at 128bp over, a ¥2bn 1.575% eight-year non-call seven SNP at 133bp over and a ¥5bn 1.915% 10-year non-call nine SNP at 138bp. An ¥8.4bn 2.6% Tier 2 subordinated tranche priced at 230.2bp over. The borrower started marketing on Tuesday morning with initial price guidance over swaps at 68bp–70bp for the three-year SP, 73bp–75bp over for the five-year SP, and 78bp–80bp over for the seven-year SP. IPG for the SNP tranches was 125bp–130bp, 130bp–135bp and 135–140bp over. Later that day, it finalised price guidance at the eventual pricing levels. The borrower marketed the Tier 2 sub tranche at 2.6% throughout the marketing period. It marketed a 10-year SP as well, but decided to drop it. As was the case with Credit Agricole's Samurai deal last week, demand was concentrated in the short to mid-term senior tranches. Credit Agricole raised ¥96.8bn from an offering of three and five-year SPs and four-year non-call three and six-year non-call five SNPs, with 71% of the demand going to the three and five-year SPs. It dropped a 10-year SP as well. Japanese regional investors showed quite strong demand, participating in all seven tranches, bankers on the deal said. Mega-banks and trust banks bought about ¥20bn of BPCE's three-year senior, with the rest taken by regional accounts. Central cooperatives bought about half of the five-year senior, and the other half was taken by regional accounts. Mitsubishi UFJ Morgan Stanley (B&D), Mizuho, Natixis, Nomura and SMBC Nikko are the joint lead managers for the new BPCE deal. The expected ratings are A1/A/AA–/A+ (Moody's/S&P/Fitch/R&I) for the SP tranches, Baa1/BBB+/A+/A for the SNPs, and Baa2/BBB/A–/A for the sub portion.
Citigroup and Bank of America expect the surge in fixed income currency and commodity trading that lifted bank revenue through most of 2022 will continue in the fourth quarter, with trading revenue rising 10% to 20%. The bad news is that the steep slump in investment banking – encompassing debt and equity underwriting and advisory – will continue, with revenue from the segment likely falling about 60% in the fourth quarter, according to the US banks. Speaking at an investor conference today, Citigroup Chief Executive Jane Fraser said the bank is hoping for a 10% increase in its markets revenue year on year in the fourth quarter “based on what we've seen in October, November.” The markets group includes both FICC and equity trading. A year ago, Citi reported markets revenue of US$3.3bn. If the trends in the quarter hold, the bank should report markets revenue around US$3.65bn, according to IFR calculations. Fraser offered a caveat, however. “December is always an interesting month in the market,” she said. Citi has had to increase its regulatory capital this year after results of the Federal Reserve’s stress test in June pointed to the need for a stronger buffer against a severe economic downturn. That could impact the bank’s trading performance. On the investment banking side, Fraser said she expects year-over-year revenue for the quarter to be down about 60% – roughly in line with its peers. “Investment banking is having a tougher go of it, and we have not seen wallet recover in the capital markets, the way I think some of us had hoped,” she said. Speaking a day earlier, BofA chief executive Brian Moynihan said investment banking revenue could be down 55% to 60% in the fourth quarter at the Charlotte, North Carolina-based lender. Investment banking revenue was strong heading into 2022 but struggled considerably in the last three quarters for top US banks. Given the currently strong deal pipeline, however, Moynihan said he expects activity in the segment to return to pre-pandemic levels. “But the pipelines are there to open back up as long as we get some stability in market,” Moynihan said yesterday. In trading, BofA is expecting FICC revenue to surge as much as 20% in the fourth quarter compared to the year-ago quarter. Revenue form equity trading is likely to be flat, he said. That would put Q4 FICC revenue at roughly US$1.9bn, if the trends hold through the end of December, IFR calculations show. “Right now, knock on wood, it will be the highest fourth quarter we've had that we can remember,” Moynihan said. Total markets revenue – FICC and equity trading – is on track to come in at roughly US$3.25bn at BofA, according to IFR calculations.
Canadian banks have made a brisk start to their new funding year, keeping up the pace after a historically busy period for others, with Bank of Montreal the latest to raise new debt on Wednesday. BMO's trade surpassed expectations as it took £1bn out of the sterling market with a three-year Sonia-linked covered bond. After missing out on a FIG supply bonanza in November due to being in blackout periods, Canadian banks have made up for lost time after publishing their full-year results last week. Following BMO's deal on Wednesday, all of the biggest five Canadian lenders - except for Canadian Imperial Bank of Commerce - have raised covered bond or senior unsecured debt in one of the euro, sterling or US dollar markets in the last week. "It’s rare that we’re doing this volume of Canadian issuance at the end of the year, post-results," said a syndicate banker at one of BMO's leads. "They’ve been a very active jurisdiction this year across all different currencies." Bankers said that the pricing levels available across the euro, sterling and US dollar markets are currently relatively comparable, allowing the issuers to pick and choose products and currencies based on where they have already been most active this year. After also raising C$2.5bn (US$1.84bn) with a five-year senior in its home market this week, BMO chose to make its second visit to the sterling market this year, following a £600m five-year that priced at 40bp over Sonia in March. The new £1bn issue was sold at 65bp over Sonia, inside guidance of 67bp area, via Barclays, BMO, Lloyds Bank Corporate Markets, NatWest Markets and Santander. “What has been very encouraging is the quantum we were able to get out of this market, because originally we were all thinking it would be a £500m-£750m size sort of trade, because it is the end of the year," said the lead banker. "Compare this to the Royal Bank of Canada [US$1.25bn three-year covered bond] trade on Monday - this BMO was Reg S so we didn’t have that big jump in the order book when the US comes in - and we’ve not landed with a completely dissimilar sort of volume in terms of absolute demand even though we didn’t have any 144A, any onshore money in the order book." The book was last reported over £1.2bn (excluding JLMs, pre-rec). “It's a really decent trade for December 7, printing £1bn out of a £1.2bn book - keeping in mind that sterling books have high quality in them, so you can print good size," said a banker away from the deal. Bankers saw fair value for the deal in the 60bp to low 60s context, interpolating from BMO's curve and other Canadian comparables. They said the price was also roughly in line with that achieved by RBC on Monday. RBC priced its US dollar three-year at 85bp over SOFR mid-swaps. 2022 volumes hard to beat After the opening salvo of the Canadian banks' new funding year, bankers said further clarity is needed on asset growth and any potential deposit outflows before accurate predictions of the banks' 2023 issuance volumes can be made. However, most expect volumes will not match the significant amounts raised in 2022. This calendar year, Canadian banks have raised €47.4bn-equivalent of covered bond and senior funding in the euro and sterling markets alone, up from €23.8bn in 2021. “It will be difficult to beat what they’ve done this year - especially on the covered bond side - but there will still be significant issuance relatively," said a second banker away from BMO's deal. “On the covered bond side there was a bit of a story there around pre-funding, because deposits were expected to reduce and that never really happened. So that provision has already been done a little bit, but equally, they have quite a few redemptions and they’ve always been larger issuers.” A DCM banker at one of BMO's leads agreed. "Many have got to a point where the bail-in [eligi
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