Carige shrugs off market vol and politics for tier two

Carige appears unfazed by recent market volatility, the inconclusive results of the Italian election earlier this month, and the new proposals and guidance from European institution on how banks should deal with non-performing loans (NPLs).

Credit Suisse, Deutsche Bank, JP Morgan and UBS will embark on a roadshow from Monday ahead of an expected 10 year non-call five deal in euros. It will be below benchmark size.

The bank had already given notice of its intention to issue when it announced in its full-year preliminary results in 2017 that it planned a subordinated bond issuance by the end of the first quarter of 2018, “compatibly with market conditions”.

Market conditions have appeared tricky in recent weeks, with issuers receiving less generous subscription levels and having to stump up more new issue premium.

And amid nearly €15bn of deals in the euro market this week, some syndicate bankers have warned that investors may start to become more selective.

But this has not deterred those working on the new Carige deal.

“I don’t think that four different syndicate banks would have promoted us to [go to] the market if market conditions were not comfortable for this issuance,” said an official at Carige.

On March 4 Italy voted in a general election, with two eurosceptic parties, the Five Star Movement and the Northern League, surpassing expectations. No political grouping won enough seats to form a government, meaning parties will have to negotiate with one another or new elections will have to be held.

“The Italian elections could be considered as a non-event right now because the outcome had been forecast by most of the media and especially most of the market stakeholders,” the official said. “We have seen other European countries with similar outcomes from political elections, and months have been required to see a government.”

The deal comes after the bank spent the end of last year sorting out its capital structure. It swapped subordinated bonds for senior notes in a liability management exercise and raised more than €500m in an equity raise.

Last year Carige also reduced its NPL stock by 34.6% compared with 2016.

This week the European Central Bank and the European Commission released their plans on dealing with banks’ NPLs. 

As a Pillar 1 measure banks are set to have to comply with a minimum coverage ratio.

This will involve a 35% write-down in the first year and a 65% write-down in the second for unsecured NPLs. Banks will have eight years to provision for secured NPLs.

But the Carige official thought the ECB’s new addendum was “manageable”.

“I think that we can manage this in a better way than how we could have before the capital strengthening,” the official added.

Carige’s capital raise was followed by Credito Valtellinese doing its own earlier this month.

“I think that both Carige and Creval’s capital strengthening have been a good sign for the market in terms of market availability to support Italian banks,” the official said.

The bank is planning to visit the market again after the upcoming transaction, and specifically is looking at opportunities for issuing for senior preferred and non-preferred debt later this year. The only Italian bank to issue the non-preferred instrument so far has been UniCredit, which did a deal for €1.5bn in January.

But an additional tier one (AT1) trade could wait. Only UniCredit and Intesa Sanpaolo have issued that type of capital note so far.

“We know perfectly well that the market is waiting for more asset quality improvement from Banca Carige so I think that it’s a bit early for additional tier one notes just right now,” the official said.

The official said this could be considered in the second half of the year or, more likely, in 2019.