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In This List

Shock And…Ordinary: European Bank Primary Issuance In 2020 So Far


How COVID-19 Is Affecting Bank Ratings: October 2020 Update


LatAm Financial Institutions Monitor 3Q2020: Climbing Out Of A Deep Plunge


Supranationals Special Edition 2020 Says Multilateral Lenders Are Addressing Challenges From COVID-19


Asia-Pacific Financial Institutions Monitor 4Q2020: Downside Risks Dominate

Shock And…Ordinary: European Bank Primary Issuance In 2020 So Far

The year 2020 has been unique in many ways. The COVID-19 shock to, and subsequent recovery of capital markets has been both severe and rapid. The initial liquidity shock saw a wave of corporate revolving credit facility drawings and an associated flurry of senior unsecured funding at elevated spreads. The speed and scale of central bank and government responses, via respective additional quantitative easing and fiscal support, inspired a significant stabilization in primary capital markets and a rally that returned spreads toward pre-pandemic levels (see chart 1). Time will tell whether this phenomenon is more reflective of learned investor behavior from the global financial crisis or appropriate re-pricing of risk. To date, COVID-19 remains an economic shock and not a financial crisis.

From a creditworthiness standpoint it is encouraging to see a fulsome reopening of capital markets for European banks, including access to Tier 2 and Additional Tier 1 (AT1) contingent capital securities by lower-rated jurisdictions. The regulatory response has clearly influenced issuance trends, leading to a significant decline in covered bond activity relative to senior and subordinated markets (see charts 2 and 3). Many issuers have taken full advantage of historically low rates to execute AT1 instruments at near-average coupons and reset spreads. Unlike in the global financial crisis, the absence of a material shortening in average duration of issuance is another indication of confidence in the credit markets, post central bank intervention. Overall, the narrative that banks are part of the solution rather than the root of the crisis has been evident.

The provision of central bank term funding schemes across Europe has resulted in a reduction in covered bond supply volumes. Most financial services companies have used the constructive market tone to issue MREL (minimum requirement for own funds and eligible liabilities) senior nonpreferred and holding company debt, Tier 2, and AT1 instruments to defend their capital ratios ahead of elevated provisioning because weaker economic conditions are likely to last well into 2021/2022.

Chart 1


Chart 2


Chart 3


Chart 4


European banks have experienced a more constructive primary market during the COVID-19 shock to date than in the global financial crisis. Although credit spreads widened materially in March 2020 as the "dash for cash" liquidity stress ripped through global markets, including for highly rated government bonds, central bank action, national government credit guarantee liquidity schemes and banks' relative credit resilience aided a swift correction in investor receptivity through the second quarter of 2020 across all bank asset classes. The reopening was led by senior unsecured products, both opco/preferred and holdco/nonpreferred (see charts 6 and 7) in euro and U.S. dollar markets offering superior liquidity (see chart 4). By and large, European banks have seized the opportunity not only to bolster liquidity at the first opportunity, but also capital via Tier 2 and AT1 trades. The strong investor demand uncovered in such subordinated transactions, albeit at elevated spreads (see charts 8-10), reflects a frequently held view that banks are part of the solution.

We have also seen a meteoric rise of green bonds in recent years (see chart 11 and 13). For European banks, this market remains concentrated in euro-denominated transactions although activity in a wider range of currencies and asset classes, notably in Tier 2 and AT1, continues to mature at pace (see chart 12; and for further details see "The Greening Of Financial Services: Challenges For Bank And Insurance Green And Sustainability Hybrids," published Aug. 12, 2020, on RatingsDirect.

European Bank Average Monthly Primary Market Spread By Asset Class And Rating

Chart 5


Chart 6


Chart 7


Chart 8


Chart 9


Chart 10


Chart 11


Chart 12


Chart 13


Active Liability Management

European banks have been actively undertaking liability management exercises so far this year as they seek to rationalize funding and capital debt profiles in response to regulatory and central bank liquidity schemes (see table 1 for a list of key exercises completed year to date). We see a number of incentives for them to continue to do so:

  • Switch legacy MREL instruments from English law to the law of an EU member state, where it lacks a bail-in recognition clause;
  • Optimize composition of Pillar 2R capital after scope was given by regulators to count more AT1 and T2 across the EU;
  • Refinance legacy AT1 capital instruments that lose AT1 grandfathering benefit;
  • Certain groups headed by holdcos opted to refinance legacy externally-issued operating company level capital instruments that lose MREL benefit; and
  • Replace noncallable senior nonpreferred or nonoperating holding company senior instruments that will lose MREL benefit one year before maturity.

Table 1

2020 European Bank Tender Offers
Date Issuer Currency Size (mil.) Details
Jan-20 Ibercaja Banco SA EUR 281.9 Tier 2
Feb-20 Santander UK PLC USD 600 Tier 2
Feb-20 ING Bank NV USD 999.7 Tier 2
Mar-20 Lloyds Bank PLC USD 333.6 Senior unsecured notes
Apr-20 Credit Agricole SA USD 25.9 Perpetual Tier 1
Apr-20 Lloyds Bank PLC USD 137.4 Perpetual Tier 1
May-20 Credit Agricole SA EUR, GBP 1927 Senior Preferred
May-20 Credit Agricole SA USD 1600 Senior Preferred
May-20 Deutsche Bank EUR 2000 11 nonpreferred senior, issued new tier 2 11nc6
May-20 Lloyds Bank PLC EUR, GBP 486.7 Senior unsecured notes
May-20 Lloyds Bank PLC USD 2145 Senior unsecured notes
May-20 Lloyds Bank PLC AUD 90.49 Senior unsecured notes
May-20 Lloyds Bank PLC GBP 1820 17 covered bond (denominated in EUR, GBP, USD)
Jun-20 Berlin Hyp AG EUR 303.2 Pfandbrief
Jun-20 Deutsche Pfandbriefbank AG EUR 60.6 Pfandbrief
Jun-20 HSBC Holdings PLC USD 3400 Holdco senior unsecured notes
Jun-20 Skipton Building Society GBP 283.4 Preferred senior
Jul-20 Barclays PLC EUR 334 Senior unsecured notes
Jul-20 Shawbrook Group PLC GBP 74.8 Tier 2
Aug-20 HSBC Holdings PLC USD 3500 Holdco senior unsecured notes
Sep-20 Virgin Money UK PLC GBP 444.6 Tier 2
Sep-20 Nationwide Building Society GBP 2040 11 covered bonds (EUR and GBP)
Sep-20 NatWest Group PLC USD 1977.3 Tier 1, Trust preferred, 2 x Tier 2
Sep-20 Barclays Bank PLC USD 42.1 iPath® MSCI India Index ETNs
Sep-20 HSBC Holdings PLC USD 1700 Holdco senior unsecured notes
Sep-20 Yorkshire Building Society EUR 250 Preferred senior
Source: S&P Global Ratings.

Table 2

Additional Tier 1 Issuance 2020 YTD
Pricing date Issuer First call date Tranche currency Size (mil.) Coupon (%) Reset (bps) CET1 trigger (%) Conversion
9-Jan-20 Santander 16-Jan-26 EUR 1,500 4.375 453.40 5.125 Equity conversion
13-Jan-20 UBI Banca 20-Jan-25 EUR 400 5.875 606.60 5.125 Temporary write down
14-Jan-20 Banco BPM SpA 21-Jan-25 EUR 400 6.125 634.80 5.125 Temporary write down
16-Jan-20 Credit Suisse Group AG 24-Jan-30 USD 1,000 5.100 329.30 7.000 Permanent write down
6-Feb-20 Luzerner Kantonalbank AG 5-Mar-27 CHF 360 1.500 150.00 5.125 Partial permanent write down
12-Feb-20 UniCredit 3-Jun-27 EUR 1,250 3.875 408.10 5.125 Temporary write down
11-Feb-20 Deutsche Bank 30-Oct-25 USD 1,250 6.000 452.40 5.125 Temporary write down
24-Feb-20 ING Groep NV 16-Nov-29 USD 750 4.875 350.60 7.000 Equity conversion
20-Feb-20 Intesa Sanpaolo SpA 27-Feb-25 EUR 750 3.750 410.20 5.125 Temporary write down
20-Feb-20 Intesa Sanpaolo SpA 27-Feb-30 EUR 750 4.125 427.40 5.125 Temporary write down
18-Feb-20 BNP Paribas SA 25-Feb-30 USD 1,750 4.500 294.40 5.125 Temporary write down
14-May-20 Bank of Ireland 19-May-25 EUR 675 7.500 792.40 7.000 Temporary write down
8-Jun-20 ABN AMRO Bank 22-Sep-25 EUR 1,000 4.375 467.40 5.125 Temporary write down
10-Jun-20 Nationwide Building Society 20-Jun-27 GBP 750 5.750 562.50 7.000 CCDS conversion
16-Jun-20 AIB Group plc 23-Jun-25 EUR 625 6.250 662.90 7.000 Temporary write down
17-Jun-20 Standard Chartered plc 26-Jul-25 USD 1,000 6.000 566.10 7.000 Equity conversion
24-Jun-20 Natwest Group 29-Dec-25 USD 1,500 6.000 562.50 7.000 Equity conversion
7-Jul-20 Cooperatieve Rabobank UA 29-Dec-27 EUR 1,000 4.375 467.90 5.125 Temporary write down
7-Jul-20 BBVA 15-Jan-26 EUR 1,000 6.000 645.60 5.125 Equity conversion
8-Jul-20 Bankinter 17-Jan-26 EUR 350 6.250 671.40 5.125 Equity conversion
22-Jul-20 UBS Group AG 29-Jul-26 USD 750 5.125 485.50 7.000 Permanent write down
4-Aug-20 Credit Suisse Group AG 11-Feb-27 USD 1,500 5.250 488.90 7.000 Permanent write down
5-Aug-20 Barclays plc 15-Dec-25 USD 1,500 6.125 586.70 7.000 Equity conversion
25-Aug-20 Intesa Sanpaolo SpA 1-Mar-28 EUR 750 5.500 584.80 5.125 Temporary write down
25-Aug-20 Intesa Sanpaolo SpA 1-Sep-31 EUR 750 5.875 608.60 5.125 Temporary write down
26-Aug-20 Bank of Ireland 1-Sep-25 EUR 300 6.000 643.40 7.000 Temporary write down
1-Sep-20 BAWAG Group AG 1-Oct-25 EUR 175 5.125 554.60 5.125 Temporary write down
8-Sep-20 Commerzbank 9-Oct-29 EUR 500 6.500 674.3 5.125 Temporary write down

Table 3

Additional Tier 1 Calls Decisions January 2020-September 2020 (Excluding Legacy Instruments)
First Call Date Issuer ISIN Priced Currency Size (mil.) Coupon (%) Reset spread Post call structure Call decision announced
18-Feb-20 BBVA XS1190663952 11-Feb-15 EUR 1,500 6.75 660.4 Interest will be reset every 5 years to 5 yrs EUR MS + 660.4bps Called
19-Feb-20 UBS Group CH0271428317 13-Feb-15 USD 1,250 7.125 546.4 Reset on the first call date and every 5 years thereafter, to a new fixed rate equal to the 5-yr mid swap rate plus 546.4bps Called
17-Mar-20 Swedbank XS1190655776 12-Feb-15 USD 750 5.5 376.7 Coupon will reset to 5-year MS + 376.7bps. Callable every 5 years from 17-Mar-2020 at par Called
26-Mar-20 DNB Markets XS1207306652 19-Mar-15 USD 750 5.75 407.5 Coupon will reset every 5 years to 5-year MS + 407.5bps. Callable 20-Mar-2020 and annually thereafter Called
2-Apr-20 Standard Chartered US853254AT77 26-Mar-15 USD 2,000 6.5 488.9 Interest will reset every 5 years at the prevailing USD 5-year mid-swap rate + 4.889% per cent year, being the initial credit spread on the securities Called
6-Apr-20 Danske Bank XS1044578273 5-Mar-14 EUR 750 5.75 464 Coupon will reset to 6-year MS + 464bps Called
16-Apr-20 ING Groep US456837AE31 9-Apr-15 USD 1,000 6 444.5 Callable every 5 years after 16-Apr-2020 Called
30-Apr-20 Aareal Bank DE000A1TNDK2 13-Nov-14 EUR 300 7.625 718 Coupon will reset annually mid swap rate plus initial credit spread (no step-up) 718bps Not Called
30-Apr-20 Deutsche Bank XS1071551474 20-May-14 USD 1,250 6.25 435.8 Coupon will reset every five years to 5yrs USD MS + 435.8bps Not Called
13-May-20 SEB XS1136391643 6-Nov-14 USD 1,100 5.75 385 Coupon will reset every 5 years to 5-year MS plus reset margin Called
18-Jun-20 Bank of Ireland XS1248345461 11-Jun-15 EUR 750 7.375 695.6 Coupon will reset to 5 year MS plus 695.6bps Called
29-Jun-20 Rabobank XS1171914515 15-Jan-15 EUR 1,500 5.5 525 Coupon will reset to 5 year EUR mid-swap rate plus initial margin of 525 bps (no step-up) Called
22-Sep-20 ABN AMRO Bank XS1278718686 15-Sep-15 EUR 1,000 5.75 545.2 Coupon will reset to 5-year MS plus 545.2bps Called
26-Oct-20 Nykredit Realkredit XS1195632911 19-Feb-15 EUR 500 6.25 598.9 Coupon will reset to 5 year EUR MS + 598.9bps. Callable annually from 26 Feb 2020 Called
15-Dec-20 Barclays XS1002801758 4-Dec-13 EUR 1,000 8 675 Callable every 5 years from 15-Dec-2020 TBD
19-Jan-21 Intesa Sanpaolo XS1346815787 12-Jan-16 EUR 1,250 7 688.4 Coupon will reset to 5-year EUR MS + 688.4bps payable semi-annually in arrears. Callable quarterly from 19-Jan-2021 at par TBD
1-Mar-21 Svenska Handelsbanken XS1194054166 18-Feb-15 USD 1,200 5.25 333.5 Coupon will reset to 5-year MS plus 333.5bps. Callable every 5 years from 1-Mar-2021 at par TBD
22-Mar-21 UBS Group CH0317921697 14-Mar-16 USD 1,500 6.875 549.65 Coupon will reset every 5-year mid swap rate + 549.65bps. Callable annually from 22-Mar-2021 at par TBD
30-Mar-21 BNP Paribas USF1R15XK441 23-Mar-16 USD 1,500 7.625 631.4 Coupon will reset every 5 years to 5-year USD mid-swap rate + 6.314% TBD
1-Apr-21 Permanent tsb XS1227057814 27-Apr-15 EUR 125 8.625 835.6 Coupon will reset to 5 yrs EUR MS + 835.6 bps, payable annually on 1 April each year and will reset every 5 years TBD
10-May-21 Bankinter XS1404935204 28-Apr-16 EUR 200 8.625 886.7 Coupon will reset to 5 yrs MS + 0.041% payable quarterly in arrear. Callable 10-May-2021 and then at any time thereafter TBD
23-Jun-21 Credit Agricole XS1055037177 1-Apr-14 EUR 1,000 6.5 512 Callable every 5 years from 23-Jun-2021 at 5-year mid swap rate +5.12% TBD
29-Jun-21 Rabobank XS1400626690 19-Apr-16 EUR 1,250 6.625 669.7 Coupon will reset every 5-year MS + 669.7bps (no step-up) TBD
10-Aug-21 UBS Group CH0331455318 3-Aug-16 USD 1,100 7.125 588.3 Coupon will reset to 5-year MS plus 588.3bps TBD
15-Aug-21 RBS Group US780097BB64 10-Aug-16 USD 2,650 8.625 759.8 Fixed until the first call date, reset every 5 years thereafter (non-step) TBD
10-Sep-21 UniCredit XS1107890847 3-Sep-14 EUR 1,000 6.75 610 Coupon will reset every 5 years to 5-year MS + 610bps. Callable semi-annualy from 10-Sep-2021 TBD
11-Sep-21 Santander XS1107291541 2-Sep-14 EUR 1,500 6.25 564 Coupon will reset every 5 years to 5 year MS + 564bps. Callable quarterly from 11-Sep-2021 at apr TBD
13-Sep-21 Nordea Bank XS1202090947 5-Mar-15 USD 550 5.25 324.4 Coupon will reset every 5 years to 5-year USD MS + 324.4bps TBD
13-Sep-21 Societe Generale USF43628C734 6-Sep-16 USD 1,500 7.375 623.8 5-yr mid swap + 6.24% resettable every 5 years TBD
MS--mid swap. TBD--To be decided.

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:John Wright, London (44) 20-7176-0520;
Secondary Contacts:Alexandre Birry, London (44) 20-7176-7108;
Giles Edwards, London (44) 20-7176-7014;

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