After turbulent market conditions kept issuers waiting, Nordea Bank and ING Groep at last kicked off European banks' post-blackout senior unsecured issuance with respective senior non-preferred and holdco senior trades on Monday, attracting multi-billion order books with triple digit spreads.
The deals are the first single currency senior unsecured transactions in the FIG space since May 5, when Morgan Stanley sold a €3bn two-part holdco senior trade during a short-lived market rally. The dramatic volatility that followed limited banks' euro issuance to covered bonds and meant that an already well-stocked pipeline of senior unsecured and capital trades continued to grow, as banks waited for opportunities after reporting their first quarter results.
"At last, we have some senior supply," said a banker. "It's great to see these trades go well - these were the right names to reopen the market."
Nordea was first on screens, marketing a seven-year senior non-preferred with initial price thoughts of mid-swaps plus 125bp area.
Leads Barclays, Bank of America, Natixis, Nordea and Societe Generale went on to set the spread at 105bp and the size at €1bn, with the final book standing above €2.1bn.
After recent rates volatility tempered investor appetite for duration, market participants said it was positive to see that it was not just the short end of the senior unsecured curve that was open and that the seven-year tenor was also an option, at least for top tier banks.
Some bankers said it was a surprise to see a bank eschew cheaper-to-deliver shorter tenors and be willing to pay for a longer dated deal while spreads are elevated. They suggested Nordea's choice reflected the view - held by many market participants - that funding costs are unlikely to go lower in the near-term.
"Maybe Nordea rings the alarm bell for other issuers, showing that spreads are not going to improve in the near-future. Maybe it resets expectations in terms of current [secondary market] spreads not just being something reflected by screens," said a second banker.
The deal's fair value was seen in the low to mid 90s, translating to a new issue concession in the context of 10bp to the low teens.
Supported by dedicated ESG demand and a more defensive tenor, ING was able to garner the largest order book of the day and to exercise greater pricing leverage for its four-year non-call three green holdco senior.
Leads BNP Paribas, Credit Suisse, ING, JP Morgan, NatWest Markets and Societe Generale opened books with IPTs of mid-swaps plus 135bp area.
The spread was set at 110bp and the size at €1.5bn, with books last reported above €3bn, excluding JLMs.
Bankers saw fair value for the deal in the low to mid 100s, implying ING arguably paid a premium as low as 5bp.
"That looks and feels skinny versus what we have seen recently, but that can be justified by [the deal] being short-dated and being green," said a third banker.
A case of history repeating
While bankers noted that the premiums paid by ING and Nordea were not elevated compared with preceding supply, those premiums were paid on top of spreads that have widened significantly in recent weeks.
The upwards trajectory of top tier European banks' funding costs in the SNP/holdco senior market can be charted through ING and Nordea. Monday's deals represented the second time this year the two issuers re-opened the market in the wake of a repricing.
On February 9, after a week-long hiatus in supply and a sell-off that followed ECB and Bank of England meetings, ING sold a dual-tranche €3bn five-year non-call four and nine-year non-call eight transaction while Nordea sold a €1bn five-year green SNP.
ING priced its two tranches at 85bp and 115bp, respectively, while Nordea priced its deal at 60bp.
At the time, the iBoxx EUR Banks Senior Bail-in index was at 70bp. On Friday, it closed at 132bp.
"For their seven-year today, Nordea started [at IPTs] with more than double the spread they paid for a five-year in February," said the second banker. "That tells you a lot about the way the market has gone this year."
Pbb lines up Tier 2 test
Following the reopening of the senior unsecured market, more deeply subordinated supply is also on the cards.
"Today's deals show the market is open, on the right day, for issuers that are willing to pay the spread required and that have a large investor community," said the third banker.
"The more interesting question is to what extent smaller issuers have access to the market. Today doesn't provide any further answers to that question. The only trade [announced on Monday] that may allow us to read a bit more into that question is Deutsche Pfandbriefbank."
Deutsche Pfandbriefbank (pbb) has mandated Goldman Sachs, HSBC and UBS to arrange investor calls, commencing on Monday, ahead of a potential €300m (no-grow) Tier 2 transaction. The deal will have a 10.25-year non-call 5.25 maturity and would be expected to be rated BB+ by S&P.
In the US dollar market, meanwhile, Munich Re has named Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC and Morgan Stanley as leads for a 20-year non-call 10 green Tier 2.
Bankers said other issuers are also monitoring the market ahead of planned capital transactions that could emerge this week, including potential insurance company supply in euros.