Julius Baer Group fell foul of a turbulent market as it was forced to pull a US dollar Additional Tier 1 transaction on Monday, having seemed on course to set a coupon record.
The Swiss bank postponed its deal after a fall in global equities deepened over the course of the day, a drop that accelerated after the European open partly on the back of concerns over a surge in coronavirus cases across the continent.
Bank stocks also slid on the back of media reports claiming several global banks moved sums of allegedly illicit funds over nearly two decades.
Bookrunners Citigroup and Deutsche Bank opened books for the perpetual non-call seven-year Reg S deal during Asian hours with initial price thoughts of 4.5% area for an expected size of US$350m.
At 10:45am UK time, the leads reported that books were above US$900m. The coupon was subsequently fixed at 4.375%, with the books standing above US$875m.
The deal therefore looked on track to set a record for the lowest US dollar AT1 coupon from a European bank, surpassing a US$1.75bn deal from BNP Paribas that was priced at 4.5% in February, albeit with a much smaller sub-benchmark size.
However, the bank announced just after 1:10pm that it was pulling the deal.
"As a result of the deterioration in market conditions throughout the day the Julius Baer Group has decided not to proceed with the planned transaction," the issuer said. "The Julius Baer Group, Citi and Deutsche Bank thank investors for their engagement."
A banker close to the deal said the issuer was unlucky after seeing a stable open give way.
"Unfortunately, market conditions deteriorated significantly and it became apparent it was not the right thing to do for the company to print the trade," he said. "Over the course of the day we did gather a healthy order book, but in the negative backdrop we found ourselves in it was not prudent to proceed.
"The performance of credit in recent weeks has significantly outperformed stocks, but today in the European market that wasn't the case."
Bankers away from the deal agreed that Julius Baer was unlucky to be caught out by the market moves, although some suggested it should have waited for a stronger backdrop.
"To back up the leads, this morning the market looked weak but not as weak as it got," said a syndicate banker. "Where you could make a criticism is this is a lesser-followed name, so you want to be going into a market with a clear uptick.
"It was a bit of bad luck in terms of the market deteriorating and maybe a bit of bad judgement because this name needs to go into a strong market."
The banker close to the deal said the market had been stable when go/no-go calls were held at the Asian open and noted other trades were also live in the market.
He added that the bank is a strong credit and investors had responded accordingly.
A WATCH POINT
Bankers said it was too early to say what the postponement of the deal and the broader market volatility meant for the prospects of further financials supply this week.
Market participants will have to assess the market on a day-by-day basis, they said.
"One day doesn't make a trend, so let's see how we trade for the next couple of days," said the syndicate banker.
"I'm broadly constructive on the market, but clearly we need to see a bit of stability in risk assets before investors start buying in size again. We're at a watch point."
A second syndicate banker agreed.
"It all depends on if this holds and if we start seeing more panic selling," he said.
"This market is pretty volatile, it can be red one day and then have everything working the next day."