In the same week Real Madrid star Isco propelled the Spanish national side to a three-nil victory against Italy, the Iberians notched up an identical result against their counterparts in a different field.
BBVA and CaixaBank became the second and third Spanish banks respectively to issue senior non-preferred debt. Santander, Spain’s sole global systemically important bank (G-SIB), had already used the instrument, meaning three Spanish banks have now issued in the format. No Italian bank has done so yet.
The introduction of senior non-preferred class is part of the process of trying to ensure European taxpayers do not having to bail out banks in the future, by requiring institutional investors to bear the losses when they get into trouble.
Spain presented a law introducing the senior non-preferred asset class in June, the second country to do so after France. Other countries, including Italy, look to be waiting for European-wide legislation, expected to be finalised at the end of the year.
UniCredit, Italy’s sole G-SIB, plans to issue up to €13.35bn of senior non-preferred between now and the beginning of 2019 — potentially a very ambitious amount in a short amount of time.
Over in Spain, Bankia and Sabadell could be the next names to issue senior non-preferred. The former was bailed out in 2012, is still state-owned, and became a symbol of the country’s financial crisis.
Yet it debuted in additional tier one with little new issue premium in July, showing investors are happy to take exposure to its most risky form of debt. Bankia entering the senior non-preferred market would represent another milestone on the Spanish sector’s return to health.
It hasn’t all been plain sailing in Spain. Banco Popular collapsed in June, and Santander bought it for a euro. Yet no taxpayer money was required. This differs from Italian cases this year, where Monte dei Paschi was granted a ‘precautionary recapitalisation’ and Veneto Banca and Banca Popolare di Vicenza were combined and split up into a good bank and a bad bank.
If Spain is this year’s model student when it comes to dealing with struggling banks, Italy is on the naughty step.
Spain’s banks are also benefiting more than Italy’s from macroeconomic factors, which should help the overall health of the sector. The country’s GDP grew by 3.3% in 2016, compared to 0.9% in Italy, according to World Bank data.
There is also more political risk for investors in Italian names, given the greater level of Euroscepticism among the electorate, which anti-establishment parties like the Five Star Movement and the Northern League have exploited. An election is due to take place by May 2018.
One area of risk for Spanish investors involves Catalan independence. The regional government intends to hold a referendum on the matter on October 1. However, the national government does not recognise the legitimacy of any such vote.
So far the potential for fireworks has not affected the FIG space. “We talk to people about it but it generally draws fairly blank looks,” said one analyst last week. Indeed, CaixaBank has its headquarters in the region, but still managed to attract over €3.5bn of demand for its deal.
But with tensions likely to escalate before or after the vote, and a political agreement acceptable to both sides unlikely in the near future, the market may well have to take note soon.
However, the challenges facing the Spanish banking sector are nothing like as bad as they were a couple of years ago.
And if it wants to see how much worse things could be, it only needs to look across the Mediterranean.