LONDON, May 9 (IFR) - The US dollar Reg S market re-emerged
as the go-to funding avenue for European banks looking to
fortify their balance sheets this week, as two banks unearthed
nearly USD18bn of investor demand for USD4bn of supply.
Spain's largest bank, Santander, priced its debut US dollar
Additional Tier 1 bond - a USD1.5bn perpetual non-call five-year
bond that attracted more than USD10bn of demand - while UBS was
deluged with over USD7.7bn of orders for a chunky USD2.5bn
10-year bullet Tier 2 - the last of the Swiss bank's current
wave of CoCos.
European issuers have tended to favour the more traditional
euro or Yankee dollar markets in 2014, but a need to diversify
while locking in competitive costs is proving too good to
"Both Santander and UBS have done euros this year, so it
made sense for them to look at a different currency," a banker
said. "Also, dollars is very cost-efficient given where dollars
He estimated that by choosing US dollars, Santander had been
able to price its deal 65bp tighter than where it would have
priced a euro issue.
Furthermore, by using the Reg S route, issuers are able to
avoid cumbersome documentation issues that they would have to
face if they went to the onshore US market.
"Demand is robust for European CoCos in the Reg S market
these days, as investors are still expecting a lot of
performance from a sector that is still undervalued," said a FIG
And while the currencies may be different, there is an
overlap in terms of investor bases and it is pretty much the
same people driving euro and US dollar Reg S issuance at the
moment according to bankers.
"Santander and UBS both achieved great results, which is
impressive considering they were both accessing the Reg S
market, which has seen significant supply this week," said Barry
Donlon, head of capital solutions at UBS.
Selling conditions proved to be ideal due to a dearth of
bank subordinated supply in recent weeks and the fact that the
cost of insuring subordinated debt has fallen to a four-year
low. The iTraxx Subordinated index is at 113bp on Friday,
according to Tradeweb.
Meanwhile, the Bank of America Merrill CoCo index has made a
strong recovery since hitting a low of 101.195 on February 10
and was quoted at 105.868 this week.
Demand is expected to remain strong, which is good news for
Deutsche Bank, which concludes its investor roadshow ahead of
its triple-tranche inaugural Additional Tier 1 transaction next
"There's plenty of demand left for Deutsche Bank's eagerly
awaited inaugural AT1, which cash-rich investors can't afford to
miss," said Vincent Hoarau, head of FIG syndicate at Credit
"Santander's USD10bn order book is a really strong result
that shows that the frenzy we saw in Q1 has come to an end.
Having said that, the cash is there for any bank that is willing
to pay the right price, particularly as supply has been fairly
low in recent weeks, while the overall market tone is extremely
In the first quarter of this year, it became commonplace for
investors to flood banks with tens of billions demand for
Additional Tier 1 transactions, but that all changed when a glut
of tightly priced deals caused indigestion in the sector.
Deutsche Bank gave further details on the size and shape of
its Reg S issue on Wednesday during an investor call.
Germany's biggest bank is eyeing a perpetual non-call
six-year for the US dollar tranche, a perpetual non-call seven
or eight-year for the euro tranche and a perpetual non-call 10
or 12-year for the sterling tranche, although the final call
dates will be decided on the back of investor feedback.
In terms of pricing, investors say secondary market
performance is at the top of their wish lists.
"Santander left a bit on the table and the new bond is
likely to perform reasonably well because of it, but UBS is not
giving investors much of a new issue bonus," said Ian Robinson,
head of credit at asset manager F&C.
Both UBS and Santander are trading up post pricing and were
quoted at 100.35 and 100.25, respectively, on Friday morning,
according to a syndicate banker.
(Reporting by Aimee Donnellan; Editing by Helene Durand and