Barclays and Lloyds land strong post-earnings deals
Barclays won by far the biggest order book of any sterling-denominated bank senior unsecured offering this year on Monday, drawing peak demand of more than £3.6bn for a £1bn holdco senior issuance.
The six-year non-call five offering – and a concurrent covered bond sale from Lloyds Bank – offered evidence of strong demand for UK lenders' debt following the release of third-quarter earnings.
The Barclays deal was marketed with initial price thoughts of Gilts plus 285bp area, via sole bookrunner Barclays. With demand surpassing £3.3bn, Barclays set guidance at 270bp (+/-5bp WPIR) for a maximum size of £1bn.
The book continued to grow, topping £3.6bn (pre-rec), allowing Barclays to set the spread at the tight end at 265bp and take the £1bn size.
"It's a huge book for any market and especially sterling," said a banker away from the deal.
Bankers attributed the response to the deal to a confluence of factors, including the value offered by Barclays' spreads – which offer a pick-up to some of its peers – and the new issue premium on offer. Bankers saw the deal's fair value in the context of the low to mid-240s.
The demand was also deemed to be driven by the relative rarity of fresh sterling senior unsecured debt from Barclays, which has ensured a positive reception on its visits to the market.
The deal, which is expected to be rated Baa1/BBB+/A, is Barclays' first senior unsecured issuance in its home currency since January 4, when it sold a £1bn eight-year non-call seven holdco senior note that drew more than £2.1bn of demand. Prior to that, the UK bank had not issued sterling senior paper since October 2020, and had not issued in such a large size since early 2018.
New sterling bank senior unsecured paper has been in short supply overall in recent weeks, with Barclays' deal the first such issuance since HSBC tapped the market on September 7.
The reception of the deal made for a stark contrast to equity investors' response to Barclays' third-quarter earnings last week. The bank's shares fell by 6% last Tuesday, owing partly to indications that the boost to its revenues from higher interest rates had peaked, with the bank stating its net interest margin will be lower than previously forecast in 2023.
"Whilst this may be a concern for equity returns, Barclays’ NIM guidance of 3.05%–3.10% (down from 3.15%) is still very healthy and will continue to allow them to generate capital as protection against any future volatility," Dillon Lancaster, portfolio manager at TwentyFour Asset Management, wrote in a blog post published on Friday.
"Indeed, from a fixed-income perspective results were encouraging with bonds unchanged and CET1 increasing to 14%; leaving them a healthy buffer against their regulatory requirements, which included an increase to the countercyclical buffer."
Prior to Monday's deal, Barclays had already surpassed its £11bn 2023 MREL issuance target – having raised just under £12bn, according to IFR data – implying that the new issue represents pre-funding for 2024. In an investor call in July, Barclays' group treasurer Daniel Fairclough said the bank would consider such opportunities and said pre-funding could be prudent in volatile market conditions.
In the covered bond market, meanwhile, Lloyds sold the third UK covered bond in the past fortnight. Lloyds, however, took a different approach from those that came before by targeting the short end, unlike Nationwide Building Society and Skipton Building Society, which issued seven and five-year deals, respectively.
Bankers said that approach made sense as demand is deepest at the short end and Lloyds had recently tapped the five-year point.
Lloyds' three-year Sonia-linked FRN was marketed with initial guidance of Sonia plus the 52bp area. Bookrunners Lloyds, BBVA, BMO and UBS went on to set the spread at 50bp and the size at £1bn, after demand surpassed £1.6bn
The deal is the biggest sterling covered bond since June 6, when Lloyds sold a £1.25bn five-year.