European banks still keen on Yankee funding
Several European banks were active in the US dollar market in the first full week of May, showing how different profiles of European financial issuer still see plenty of value in Yankee offerings even if funding levels are not at their most competitive.
Three deals, from Deutsche Bank, Standard Chartered and UBS, restarted Yankee FIG supply on Tuesday, raising a combined US$5bn of senior unsecured debt.
Deutsche Bank landed a US$1.5bn six-year non-call five senior non-preferred at 140bp over Treasuries, Standard Chartered priced a US$1bn 6NC5 fixed at 135bp over Treasuries and a US$750m 6NC5 FRN at 168bp over SOFR, while UBS printed a US$1.75bn 11-year non-call 10 at 128bp over Treasuries.
Deutsche and StanChart managed to tighten their fixed tranches by 30bp from IPTs, while UBS tightened 32bp.
Then, on Thursday, HSBC's US$5.5bn three-part holdco senior offering and AIB's US$750m six-year non-call five transaction came while the euro market was all but closed due to the VE Day public holiday.
HSBC priced US$2.25bn six-year non-call five and US$2bn 11-year non-call 10 fixed-rate tranches at Treasuries plus 125bp and 140bp, with both tranches tightening by 30bp from the initial price thoughts provided when the deal started marketing in Asia hours. The US$1.25bn six-year non-call five floater landed at SOFR plus 157bp.
Bankers away from the deal estimated that the IPTs for both fixed-rate tranches were around 30bp wide of fair value, suggesting HSBC paid no concessions.
HSBC was joined in the Yankee market by Ireland's AIB Group, which priced a six-year non-call five holdco senior transaction in the New York afternoon.
Leads Barclays, Goldman Sachs, Goodbody, JP Morgan, Morgan Stanley and Wells Fargo marketed the 144A registered deal with IPTs of the Treasuries plus 165bp area. The trade later priced at 133bp, tightening by 32bp.
Bankers said Yankee financial borrowers were benefiting from the perception that the cohort represented a pocket of value amid relatively tight spreads in the broader US corporate bond market.
"We've seen very good demand for Yankee bank supply," said a syndicate banker on the AIB deal.
Before the trade priced, he said marketing for the Irish bank was "going exceptionally well". As AIB was an infrequent and unfamiliar issuer to US investors, appetite for its deal showed the depths of demand for Yankee issuance more broadly.
Demand came in at around US$6.2bn, according to a second banker close to the deal. AIB said the book was its largest to date for a US dollar transaction.
"Unusual"
May tends to be a busy month for Yankee supply, as European banks set their sights on the US dollar market after reporting Q1 results.
However, market participants said this month could be different, noting that cross-currency levels mean senior funding costs in the euro market are more attractive than US dollars for European issuers.
"That is a little bit unusual, for euros to be a better level at the moment than you’re seeing in the US dollar market," said a second syndicate banker.
And while activity in the US dollar market has picked up over the past week, it has not been the first port of call for every name.
The syndicate banker noted that Lloyds Banking Group and NatWest Group, for example, opted for the euro market for their respective Tier 2 and holdco senior post-results trades. HSBC and UBS also hit euros first before turning their attention to US dollars.
“This is a window where we typically get several Yankees done,” said a third syndicate banker. “I think we will get our fair share, but looking at the relative costs, euro pricing is clearly better for most issuers.
“Some issuers will be okay with paying a dollar premium to maintain access and diversification, but several others will divert to euros just because of the cost.”
Bankers said that for core European banks, US dollar pricing in intermediate and shorter tenors is generically at least 5bp wider than that available in euros on a cross-currency basis, while for issuers from other jurisdictions the cost is higher.
Some bankers said they therefore expect this month's Yankee supply to be especially dominated by core European banks with particularly large, global funding programmes, which are more inclined to pay up for the depth and diversity the US dollar market offers.
However, the presence of AIB in the market on Thursday showed that is not a rule.
"One or two others might want to keep their presence in US dollars, those who print once or twice a year. We could still see those types of transactions," said a fourth banker, at one of AIB's leads.
HSBC, for its part, has stated that it plans to issue US$16bn–$18bn-equivalent of holdco senior debt this year, aiming for net positive issuance with an eye on expected balance sheet growth, given around US$14bn-equivalent of its holdco senior debt will mature or come up for call this year.
Going into its blackout period ahead of the publication of its first-quarter results on April 29, HSBC had only tapped the holdco senior market once this year, albeit raising a hefty US$7bn with a five-part deal on February 26.
After the past week, the bank will be well on its way towards the US$16bn–$18bn target. In addition to Thursday's deal, it had already raised €3bn (US$3.4bn) of holdco senior debt with a two-part five-year non-call four and nine-year non-call eight transaction on Tuesday.