Banks in 2019: learning to live with tougher markets
GlobalCapital has put together a series of infographics looking at the financial institutions bond market in 2018 and in the year ahead.
Spread widening: We need to talk about Italy
Bank debt took a beating in 2018. It was difficult to pinpoint a single driver behind the underperformance, with concern about global growth, the end of quantitative easing and the rise of populist politics each impacting on investment decisions.
But not all banks have suffered equally -— Italian lenders bore the brunt of any sell-off as investors fretted over the government’s frequent clashes with EU institutions.
The situation in Italy was often a driver of the broader sentiment in European debt markets. Industry professionals expect little will change on this front in 2019.
AT1s to watch
The big question for the long list of additional tier ones arriving at their first call dates next year is whether issuers will choose to extend them.
Banks should make economic judgements on AT1 call decisions, assessing the cost of refinancing a deal against the cost of paying its reset spread. Though investors expect most will be called in 2019, an increase in financing costs means the risk of the first AT1 extension is growing.
Liquidity: a new balancing act
The first €399.6bn of money borrowed through the European Central Bank’s targeted longer term refinancing operation (TLTRO) is not due for redemption until June 2020, but it will start losing its value for the net stable funding ratio — a new requirement for net stable funding — a year in advance. Throw in a heavy calendar of euro covered bond redemptions and banks are expected to be big funders next year. Some commentators are already predicting that this could be too much for parts of southern Europe, prompting speculation about the need for a new round of TLTRO.