2nd UPDATE: Europe Banks Tap Bond Market As Sentiment Improves

9th Jul 2010 16:28

(Adds information, comment) By Mark Brown Of DOW JONES NEWSWIRES LONDON (Dow Jones)--European banks are taking advantage of better sentiment in bond markets to raise money after sovereign bond market volatility limited issuance in May and June. HSBC Bank PLC of the U.K. sold a EUR1.5 billion, 4% senior bond maturing in January 2021 Friday, while France's Banque Federative du Credit Mutuel (FD-BFD) also priced a 10-year, senior deal Friday, raising EUR1 billion, after Thursday saw five new senior deals, two lower tier 2 issues and one covered bond. Investors are ready to buy bank bonds again as peripheral euro-zone sovereign spreads tighten and the economic outlook appears to improve, and markets are optimistic that most European banks can pass the forthcoming stress tests. "Banks are just issuing because the market is open at the moment," said a syndicate banker. "Thursday, bank spreads were tighter and there was a very positive tone" Thursday's supply totalled EUR5.6 billion, and the weekly total will be around EUR14 billion, according to Deutsche Bank AG. Banks that have sold senior bonds this week include BNP Paribas SA (BNP.FR), Societe Generale SA (GLE.FR), Rabobank, Royal Bank of Scotland Group PLC (RBS), and UBS AG (UBS). Barclays PLC (BCS) and Intesa Sanpaolo (ISP.MI) issued a total of EUR2.75 billion of lower tier 2 debt. "The market is still predominantly focused on higher quality names so far," Deutsche credit strategist Jim Reid said in a note. The sovereign bond crisis dented demand for bank debt, as investors fretted about bank holdings of government bonds and the ability of indebted governments to continue supporting the sector. The new deals could allay fears that banks will struggle to refinance the large amounts of debt maturing after the crisis left them reliant on shorter-term funding, although that will take time. According to Barclays Capital, European banks face EUR1.5 trillion in redemptions by the end of 2012. Deutsche Bank's Reid said: "The capital markets likely need to be operating like this 24/7 for many years before the system has time enough to be cleansed." "We will probably see a flurry of fresh supply over the next days as issuers try to lock in some of their funding before the European summer recess. Days like yesterday are a tiny but important step towards normality," he added. Most of this week's new deals were trading around reoffer levels Friday, although the Barclays bond had tightened. Ben Bennett, credit strategist at Legal & General Investment Management, said the absence of tightening might have been because investors anticipated more issuance. "People have been selling existing paper to make space for the new deals, which is fair enough," Bennett said. "You wouldn't expect them all to commit new money. People can't turn from bearish to bullish overnight." Another encouraging sign has been the ability of some banks to issue longer-dated senior debt or covered bonds. Rabobank Nederland's EUR1 billion, 15-year bond Wednesday was the longest-dated senior bond sold by a European bank this year, and followed a EUR1.25 billion 15-year covered bond from France's Credit Agricole SA (ACA.FR) that priced Monday. "It's very encouraging to see some financial institutions being able to term out their liabilities," said Tim Skeet, head of covered bonds at Bank of America Merrill Lynch in London. "There is clearly investor appetite for the higher yields associated with longer-dated issuance." -By Mark Brown, Dow Jones Newswires; + 44 (0)207 842 9485; [email protected] (END) Dow Jones Newswires July 09, 2010 11:28 ET (15:28 GMT)