Bespoke LM to dominate 2013 market
LONDON, Nov 22 (IFR) - Bank liability management exercises will be more bespoke in 2013, a panel of banking experts told some 200 attendees at the IFR Bank Capital Conference in London on Thursday.
"The low hanging fruit has been plucked," said David Leeming, director of liability management at RBS. "Very simple cash buybacks have all been done and now the onus is on us to do more creative exercises."
Panelists and attendees seemed united in the opinion that liability management will continue to be an important feature in issuer tool kits as they prepare for the implementation of Basel III.
Banks have adjusted to the rallying market in 2012 by focusing more on issuance, but have also created capital through liability management exercises.
David Marks, head of FIG DCM Europe at JP Morgan, predicted that investors will be faced with a growing trend towards aggressive strategies in liability management, and he wondered how they will react to this as well as reduced premiums on deals.
Controversial consent solicitations and Dutch auctions will draw close scrutiny and issuers are likely to be seeking more analytical ways of creating capital through LM, bankers said.
Italy's largest retail bank was named and shamed at the conference following a notably aggressive liability management exercise that was launched in October and removed the call option on some of the issuer's subordinated debt without prior consent from the bondholders.
Panelists were quick to point out that they did not necessarily disagree with Intesa's approach, but the investor backlash that followed an intervention by the trustee will be enough to deter other banks from following suit for the time being.
Increasingly, European banks have been signalling to investors that they will not be adhering to previous market practice of calling subordinated deals at the first opportunity for economic or regulatory reasons.
On the sidelines of the conference, bankers were surprised that investors did not speak out when the Intesa liability management exercise was being discussed, and one banker said that in 2013 banks are likely to push the boat out even further.
"Intesa broke the perceived taboo with a trustee taking a position that was on the side of the issuer. I think this time next year we might be sitting here thinking Santander and Intesa were tame compared with what is likely to come," he said.
As the session drew to a close, bankers said that in 2013 investors should focus more on the institutions they are investing in, and the strategy of those banks as they transition through the crisis. (Reporting by Aimee Donnellan, Editing by Helene Durand, Julian Baker)