The bank plans to maintain an AT1 buffer
of 2%. That gives it some breathing space
while the final impact of Basel IV on its
capital ratios remains unclear - the bank is
assuming a 30% to 35% increase in risk
weighted assets - while also providing a
larger cushion for senior bondholders.
“There are still so many uncertainties on
when Basel IV will start to hit us, and how
exactly it will be implemented, that we feel
we have sufficient time to raise more AT1 in
the future if there is a need to do so,” said
Linda Driesen, associate director in capital
and funding at Rabobank.CLEARING THE PATH?
Limited AT1 issuance is not surprising given
the progress already made by Europe’s
largest banks. A handful of smaller tier
lenders stepped up earlier this year but as
conditions soured, so did their desire and
ability to access markets.
However, the deal’s success could unlock
more supply if the backdrop remains
supportive. The Spanish banks, including
Santander and BBVA in particular, have long
been rumoured, and investors have
reportedly been wall-crossed for a Spanish
transaction.
“There are a number of names around, and
certainly in euros, no one wanted to be the
first mover,” said the lead. “Now that Rabo
has shown the market is open and working,
then I think it does open it up for others.”
That said, 2019 is shaping up to be the
busier year for issuance as a growing
number of banks start to refinance the first
vintage of AT1 paper.
Despite the sector’s poor performance
over 2018, the investment case remains
strong. Bank profitability remains under
pressure, but CET1 ratios have plateaued
after years of building up capital - a boon for
AT1 investors.
“It’s probably an asset class which has
been underperforming our expectations but
also fundamentals, so I would say it is
becoming one of the most interesting fixed
income asset classes these days,” said
Michael Hunseler, managing director at
Assenagon Asset Management.MUNHYP TAKES LONG-TERM VIEW
WITH SNPMUENCHENER HYPOTHEKENBANK broke with the
recent flurry of German senior preferred
issuance, opting instead to bring a €250m
senior non-preferred (SNP) September 2025
as it sought to bolster its buffer of loss-
absorbing debt.
The German lender priced a €250m no-
grow seven-year SNP via BayernLB, DekaBank
and DZ Bank at 40bp over mid-swaps, from
the low 40s IPTs.The decision to opt for an SNP instead of a
senior preferred was at odds with Berlin
Hypo, Commerzbank and Deutsche Bank,
which rushed to the preferred market last
month as they sought to access cheaper
sources of funding.
“While we have enough senior non-
preferred and our MREL quota is fulfilled,
we are also taking a long-term view and
building our buffers,” said Martin Schmid,
responsible for ALM and strategic funding at
Muenchener Hypo.
“This is more a capital project and
something you do when you have a good
rating and there is a good market
environment. The market is not always in
good shape for this type of trade.”
The issuer is rated A2 by Moody’s and is
more of a familiar face in the covered bond
market.
Schmid said that while Muenchener Hypo
had legacy instruments that counted as
MREL, they would start to be phased out.
“So at some point, you need to issue these
instruments and we want to pre-finance that
buffer. Also, the buffer required by the
rating agencies is significantly higher than
the one required by the law,” he said. “We
are very happy with the level we achieved. If
you look at where other banks priced their
senior preferred, this is coming almost at
the same level for a senior non-preferred.”
ALANDSBANKEN was the only other issuer to
access the euro senior market last week,
successfully hitting the tight end of pricing
with a senior bond as it raised €250m at
swaps plus 55bp.
The Finnish lender, which makes
occasional forays beyond the Nordic funding
markets, started marketing the three-year
sub-benchmark transaction at swaps plus
55bp-60bp.
The latest trip to the euro markets
surpassed the size of its last effort in March
2017, when it sold a €100m three-year
senior.
Alandsbanken has also raised covered debt
in the single currency, including a €250m 0%
seven-year covered in September 2016.
The latest issue has an expected BBB
rating from S&P.
S&P revised its outlook on the bank to
positive from stable in July. Alandsbanken
sold a SKr200m (US$22m) Tier 2 bond in May
at three-month Stibor plus 240bp, which
lifted its total capital ratio to 15.2%. Its
Common Equity Tier 1 capital ratio stands at
12.8%.
The active books were DZ Bank, Swedbank
and UniCredit.SMTB EYES GREEN EURO ISSUESUMITOMO MITSUI TRUST BANK will make a rare
trip to the euro market to sell its first Greenbond, which should carry a better rating
than other Japanese bank paper in this
format.
SMTB, Japan’s fifth largest bank by total
assets, mandated BNP Paribas and Bank of
America Merrill Lynch as joint Green
structuring agents on the short-dated senior
unsecured transaction. They are also lead
managers alongside Credit Agricole, Goldman
Sachs and Daiwa.
The issuer will meet investors from
September 10. The proceeds will fund
existing and new eligible Green projects.
Japan’s three mega banking groups –
SMFG, MHFG and MUFG – have only sold
euro fixed-rate senior debt from their
holding companies in recent years,
reflecting their need to raise billions in loss-
absorbing debt to meet global TLAC
standards.
That includes their green issuance, which
will also count towards that TLAC target.
MUFG, for example, sold a €500m five-year
at swaps plus 30bp in January this year.
SMTB, however, a subsidiary of Sumitomo
Mitsui Trust Holdings, does not need to
meet TLAC. The notes are being issued at the
opco level, which is likely to result in a
slightly better rating. Holdco senior debt is
structurally subordinated to opco senior.
The bonds are expected to be rated A1 by
Moody’s and A by S&P. Green TLAC-eligible
senior bonds sold by SMFG, MHFG and
MUFG have all been rated one notch lower
at S&P, at A1/A–.
The issuer picked euros to broaden its
funding mix, a lead said. All of its foreign
currency issuance has been limited to US
dollars in recent years, according to the
investor presentation. The Green bond
market is also more established in Europe
than in other regions.
While holdco debt has dominated recent
Japanese euro issuance, the country’s other
major lenders still have opco debt
outstanding that will provide an obvious
pricing comparison.
A Sumitomo Mitsui Banking Corporation
€750m 1% January 2022 (A1/A) was quoted
last Monday at 33bp over swaps, for
example.STERLING
BANCO SANTANDER OPENS UP STERLING
SNP FRONTIERBANCO SANTANDER made a strategic re-entry to
the sterling market last Tuesday to better
match its assets and liabilities as it loads up
on loss-absorbing debt.
The £500m September 2023 senior non-
preferred deal (Baa1/A-/A-) priced at Gilts
plus 185bp, 5bp inside the initial marketingInternational Financing Review September 8 2018 37BONDS FIG
6 Bonds 2250 p25-55.indd 37 07/09/2018 19:29:59