Santander

Public sector issuers from the eurozone periphery this week drew big books on deals that later tightened in secondary trading, as expectations that Italy could be added to the long list of European elections this year failed to deter investors.

The contingent convertible (CoCo) bank capital market received all the plaudits on Wednesday, when Banco Popular Español was forced into a “rescue” by Santander.

Many equity market participants thought the wave of big European bank recapitalisations was beginning to wind down, until Santander surprised the market on Wednesday by announcing a €7bn rights issue to recapitalise Banco Popular, its failed domestic rival, after agreeing with European regulators to buy the bank for €1.

European authorities applied the bank recovery and resolution directive (BRRD) for the first time on Wednesday, placing Spain’s Banco Popular into resolution and approving its sale to Santander. The regulatory process, in which additional tier one (AT1) and tier two bonds were wiped out, has far ranging implications for all market participants working on financial debt.

With the Credit Suisse rights issue closing this week and the completion of cash calls by Deutsche Bank, UniCredit and Millennium BCP earlier in the year, the latest wave of big bank recapitalisations looked like it was drawing to a close, until dramatic news on Wednesday this week.

A pair of eurozone periphery SSAs are tackling opposite ends of the euro curve this week. Italy will launch a 30 year benchmark on Wednesday, while a Spanish agency drew a doubly subscribed book for a three year.

European banks have already made stellar progress in working through their issuance programmes in 2017, shifting emphasis on to those with shortfalls or ‘strategic trades’ left to complete.

Rating (expected): BBB-

Corporate bond issuance in Europe slowed to a trickle on Thursday after a gush of trades on Wednesday, as investors said they were growing increasingly tired of the recently popular execution method of offering a chunky spread at initial price thoughts, only to tighten markedly by final pricing.

The stampede by corporate dollar issuers continued into a second consecutive week with Italian energy giant Enel printing the largest ever deal by an Italian corporate in the US investment grade market, and the second biggest Yankee deal of 2017.

Sparebanken Sør Boligkreditt and Société Générale enjoyed solid receptions for their covered bonds this week, with the Norwegian issuer pricing flat to its curve.

Santander placed three taps of a senior non-preferred May 2023 line on May 19, raising a total of €270m. The issuer was one of the first Spanish banks to issue this type of private placement, which drew significant investor demand.