UPDATE 1 - Big US banks go for size
The biggest US banks raised US$16.5bn from the high-grade bond market on Monday after reporting first-quarter results, amid heightened uncertainty brought about by the Trump administration's ever-changing tariff regime.
Though credit spreads have been choppy, lenders were expected to raise a significant sum this week as they look to get ahead of a potentially worsening US economy. JP Morgan analysts last week predicted US$32bn of post-earnings issuance from the US global systemically important banks, and today's supply will help meet the forecast for elevated supply.
"To get this much bank debt done in a day is a pretty healthy sign," said Nicholas Elfner, co-head of research at Breckinridge Capital Advisors.
He said the ability of the US banks to price the deals in an uncertain backdrop, as demonstrated today, would give confidence to the market.
"It's a blend of showing leadership in the corporate bond market, which is important not only for their funding needs and their asset liability management, but also for their underwriting business."
As expected, investment bank Morgan Stanley brought the largest deal of the session with an US$8bn four-part offering of senior unsecured notes. Rated A1/A–/A+, the holdco issue includes four-year non-call three, six-year non-call five and 11-year non-call 10 fixed-to-floating notes. The SEC-registered trade also included a four-year floater.
Meanwhile, money center bank JP Morgan priced a US$6bn two-part holdco deal, split into US$2.5bn six-year non-call five and US$3.5bn 11-year non-call 10 fixed-to-floating notes.
Though JP Morgan and Morgan Stanley both set IPTs for their six-year fixed-to-floating tranches at Treasuries plus 135bp area, they priced them at 110bp and 118bp, respectively.
In comparison, the average credit spread for high-grade bank bonds was 118bp over Treasuries on Friday, according to ICE BofA data, 17bp wider than where those bonds traded on "Liberation Day," April 2, when the US unveiled steep tariff hikes.
There was some bank-level issuance today too. BNY printed a US$2.5bn three-part bond aimed at short-dated tenors, including US$750m two-year non-call one and US$1.25bn four-year non-call three tranches in fixed-to-floating rate format, along with a US$500m four-year floater. BNY's offering is rated Aa1/AA–/AA.
A portfolio manager said the custody bank's decision to sell opco bonds indicated BNY could be preparing for the prospect of customers pulling out cash as such issuance could help offset deposit outflows.
"The one from BNY is probably the most interesting," he said. "I'm wondering whether they're just trying to get bank-level funding, particularly if they do see rates stay higher and deposits leave their bank."
Though the big US banks so far have reported better-than-expected earnings, driven by stronger trading revenues, some investors and analysts are looking past their strong first-quarter results as they gauge the effect a possible US recession would have on the FIG sector.
"Macro risk dominates the banking sector," said the portfolio manager. "If we do go into a recession, they'll typically widen out more than the rest of the market."