Intesa blazes trail for peripheral bank FRNs

Wed Jan 23, 2013 9:42am EST

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LONDON, Jan 23 (IFR) - Intesa Sanpaolo became the first peripheral bank to tap the benchmark floating-rate note market in 2013, potentially blazing a trail for other national champions looking to raise cheap debt to repay money borrowed from the ECB.

The EUR750m two-and-a-half-year senior floater priced on Tuesday at three-month Euribor plus 155bp on the back of a book of EUR1.2bn comprising more than 150 orders. This represented no new issue premium versus Intesa's outstanding FRN curve.

Lead managers Banca IMI, DZ Bank, LBBW, Raiffeisen Bank International and UniCredit said the bond was performing well in the secondary market, tightening marginally to 153bp over.

"This will hopefully be the beginning of a trend of peripheral banks - especially Italian - issuing FRNs," said one of the leads.

Richard Thomson, senior credit analyst at Henderson Global Investors, said national champions should not have any difficulty in attracting investor demand if the pricing is right, highlighting that the order books on peripheral bonds have been well covered so far this year.

"It makes sense in the current environment for peripheral banks to use all funding routes - fixed, floating and secured - to issue at these kinds of spreads," said Thomson.

Banks (including private banks) took 52% of the Intesa issue, funds 40%, insurers 5% and others 3%. By region, Italy accounted for 27%, France 18%, Germany 15%, Iberia 12%, Austria 10%, the UK 5%, the Nordic countries 5%, Benelux 4% and others 4%.

FOLLOWING THE CORE

Intesa's bond follows in the footsteps of a group of core issuers that have taken advantage of cheap short-dated funding to issue FRNs well inside the ECB's main refinancing rate of 75bp. Bankers have predicted at least some of the proceeds will go towards reimbursing the ECB.

Peripheral banks still do not benefit from such cheap funding levels, but some are thought to be lining up LTRO repayments as a sign of strength to the market.

"Certainly, repaying its LTRO money is an important marketing message that Intesa wants to project, similar to that of the French banks," said one official on the Intesa deal.

Intesa was one of few banks to reveal its total ECB borrowings of EUR36bn across the two LTROs in late 2011 and early 2012.

Enrico Cucchiani, Intesa's chief executive, told Italian newswire Radiocor on Wednesday that it was premature to start thinking about reimbursing LTRO money.

This contrasts with other peripheral banks such as La Caixa, which has made it clear it intends to begin repaying LTRO money once the first opportunity arrives on January 30.

There are doubts whether second-tier banks will be able to muster anything more than symbolic ECB repayments due to the economic costs of doing so.

For instance, Intesa paying 155bp over three-month Euribor on this latest FRN equates to 1.76% - 101bp over the interest rate charged on the ECB's LTRO.

Intesa is considered one of the more solid institutions in the periphery, moreover, and its funding costs have been progressively falling as the eurozone crisis has eased. (Reporting By Christopher Whittall; Editing by Philip Wright, Julian Baker)

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