Spain

Euro conditions are excellent for public sector borrowers, with Spain pulling in a nearly €30bn book for an €8bn 10 year — which bankers away from the trade said indicated a high presence of quality investors — and KfW raising €5bn after picking a seven year deal over a shorter tenor. Another pair of issuers are now looking to take advantage.

The euro market for public sector borrowers looks set to kick back into action after a quiet last week, with a pair of big borrowers mandating for trades to come on Tuesday.

It wouldn't be a proper IPO season without a few duds.

Europe’s IPO market took a couple of knocks this week when one flotation was pulled and another traded sharply down on its debut, partly because investor sentiment has cooled. But there was still enough vigour in the market to ensure a successful conclusion to the €3bn re-privatisation of Allied Irish Banks (AIB), write John Loh and Jon Hay.

When Banco Popular lost the market's confidence, it ran out of road. Realistic assumptions for recovery rates on bad assets plunged to super-conservative levels. Confidence is the greatest form of solvency, its withdrawal a precursor to insolvency.

Allied Irish Banks again tightened guidance on its London and Dublin IPO this evening, moving the lower and upper limits to €4.30 to €4.50 a share.

The difference in trading levels between well capitalised and thinly capitalised banks could increase following Banco Popular’s resolution, making it more difficult for some banks to access the market for subordinated debt.

Guarantor: Kingdom of Spain

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.

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.