Top news
Carige rescue highlights BRRD flaws
People & Markets Fourth Italian state bailout in three years leads to call for change
BY GARETH GORE
With BANCA CARIGE becoming
THEûFOURTHû)TALIANûBANKûTOûBEû
bailed out using public funds
in the past three years,
European Union rules that
were meant to prevent
taxpayers footing the bill for
failing banks have once again
been thrust into the spotlight.
4HEû"ANKû2ECOVERYûANDû
2ESOLUTIONû$IRECTIVEûWASû
supposed to create a cushion of
private capital that would be
used to recapitalise failing
institutions when it was
enshrined into law in 2014.
"UT ûlVEûYEARSûON ûTAXPAYERSû
remain the driving force
behind most of Europe’s bank
rescues.
"22$ûRULESûHAVEûINûFACTûONLYû
been used once – in the case of
Spanish lender Banco Popular
- when it comes to resolving a
failing bank. And that case is
NOWûTHEûSUBJECTûOFûHUNDREDSûOFû
separate legal battles that are
likely to run for a good few
years to come.
While the days when
governments would directly
INJECTûEQUITYûINTOûBANKSûAREû
gone, nowadays bailouts tend
TOûBEûMOREûNUANCEDû)NûTHEû
CASEûOFû#ARIGE ûPEERûBANKSûWILLû
buy new shares while two
state-controlled lenders will
come in as anchor investors for
a Tier 2 bond that the bank has
been unable to sell privately.STATE ORCHESTRATED
The bailout comes after three
other state-orchestrated
RESCUESûINû)TALYû)NûTHEûCASEûOFû
Banca Popolare di Vicenza and
6ENETOû"ANCA ûTHEû)TALIANû
government in effect paid
)NTESAû3ANPAOLOûTOûSTEPûIN û
opening the door for a bankindustry fund to rescue a third
bank, Banca Monte dei Paschi
di Siena.
Such deals have led to
criticism – not least from
FORMERû'ERMANûlNANCEû
minister Wolfgang Schaeuble,
who personally wrote to the
%UROPEANû#ENTRALû"ANKû
alleging that the rescues might
have fallen foul of strict EU
STATEûAIDûRULESû4HEû%#"û
responded by saying that state
aid was not part of its remit.
/THERSûWORRYûTHATûSUCHûSTATEû
bailouts are still necessary,
BECAUSEûOFûONGOINGûmAWSûINûTHEû
"22$û-ANYûBANKSûnûLIKEû
#ARIGEûnûHAVEûINSUFlCIENTû
buffers to make a bail-in
FEASIBLEû2ATINGSûAGENCYû30û
recently went so far as to state
that European banks simply
are “not truly resolvable”.
“Many systemically
important European bankslNDûTHEMSELVESûINûAûHALFWAYû
HOUSE vûAûTEAMûOFû30ûANALYSTSû
led by Giles Edwards wrote.
“Behind them, widespread
taxpayer bailouts so visible in
THEûlNANCIALûCRISIS ûANDûAHEADû
resolvability, albeit not yet in
sight.”
“This continues to place
European banks and their
regulators in a particularly
awkward position,” they wrote.
That awkward position is
likely to last for some time
longer: banks have until 2024
to build their bail-in buffers,
which should make resolution
easier.
Weaknesses don’t only lie
with bank buffers. The Single
2ESOLUTIONû"OARD ûWHICHûISû
CURRENTLYûlGHTINGûNUMEROUSû
legal battles over its handling
of the Popular case, will not
have all the funds earmarked
for rescues until 2024. PopularEnBW breaks hybrid yield record
Bonds Utility sets new benchmark but books fall away from peak
BY SUDIP ROY
ENBW set a new low yield for a
corporate hybrid issue on
Monday but while that record
was eye-catching what really
stood out was the pattern of the
book.
,EADSûWEREûSURPRISEDûATûHOWû
orders continued to pile in for
the dual-tranche offering
between books opening and
lNALûGUIDANCE ûEVENûASûPRICINGû
was sharply revised.
But then one last push tighter
proved too much for many
accounts as demand nearly
halved from peak levels by the
time of pricing.
And even though the €1bn
Green transaction still ended
lVE
TIMESûSUBSCRIBED ûTHATû
wasn’t enough to prevent the
bonds trading down on the
break on Tuesday, though one
lead syndicate banker said the
poor performance was more a
REmECTIONûOFûAûSOFTERûMARKET
All credit markets were
weaker on the day, with high-
beta sectors such as AT1,
high-yield and corporate hybrids
struggling the most.
/Nû7EDNESDAY ûAûBETTERûDAYû
FORûlXEDûINCOME ûBOTHûTRANCHESû
had recovered a touch but were
still below their par pricing. The
lead banker spotted the €500m
November 2079 non-call
November 2024 tranche bid at
99.40 and the €500m of August
2079 non-call August 2027s at
99.60.
While accounts may be
unhappy sitting on a paper loss,
EnBW will be more focused on
the low coupons it achieved.
The non-call 5.25-year tranche
was priced with a coupon of
1.125%, breaking the previous
hybrid record set by Total in
!PRILûANDû$ANONEûINû/CTOBERû- Both of those perpetuals,
callable in April 2024 and June
2023, paid 1.75%.
EnBW’s non-call eight-year,
meanwhile, also came inside
where Total and Danone were
priced, at 1.625%.
This was down to a tightening
during execution rarely seen in
the investment-grade corporate
market.
h)TûWASûLIKEûSOMETHINGûINûTHEû
EMERGINGûMARKETS vûSAIDûAû$#-û
banker close to the deal.
PHENOMENAL
The non-call 5.25-year was
priced 75bp inside the 1.875%
area initial price thoughts and
the non-call eight-year 87.5bp
inside its 2.5% area starting
point.
4HEûlRSTûREVISIONûSAWûTALKû
tightened by 50bp on each
tranche, with combined orders
over €8.2bn. Final guidancefollowed at 1.25% area and 1.75%
area, both plus or minus 12.5bp
(to price in range).
Typically, by this stage there
would be signs of attrition given
the tightening, but books had
grown to €9.55bn.
However, after this update
orders fell away. So much so that
by the time the bonds were
priced, books stood at €5bn with
a skew to the non-call eight-year,
as both tranches came at the
TIGHTûENDûOFûTHEûlNALûRANGES
Still, leads were overwhelmed
BYûTHEûOUTCOMEûh)TûWASû
phenomenal,” said a second
syndicate banker on the deal.
“We were cognisant of how
quickly the market has moved
over the last few weeks – Merck
and Engie hybrids have
TIGHTENEDûSIGNIlCANTLYv
h7EûSTARTEDûWITHû)04SûTHATû
encompassed part of that
tightening. The orders grew