* Yankee paper in demand as US investors move down the
* Bankers circling French, Italian and Spanish borrowers
* Swift execution advised to avoid potential volatility
By Aimee Donnellan
LONDON, April 19 (IFR) - European banks are preparing to hit
the US market to take advantage of competitive pricing levels at
a time when US investors have a more positive outlook on the
Bank deleveraging has capped senior and covered supply in
general, but the drop in Yankee supply has been even more acute.
So far this year, Yankee issuance from European banks stands
at USD16.5bn, according to IFR data, down almost 42% from the
same period a year ago when the region's banks sold a total of
USD28.35bn to mainly US investors.
That could all be about to change, driven by US investors'
desire to move down the credit curve in search of yield, which
has created a competitive backdrop for eurozone issuers.
BBVA's USD2bn five-year deal from last October has rallied
by nearly 160bp from its Treasuries plus 435bp pricing point -
an impressive performance considering US investors had boycotted
Spanish bank debt for the 17-month period leading up to the
"There are only two ways to make money this year - through
buying subordinated debt in issuers that you like, or by getting
comfortable with peripheral banks and positioning yourself for a
convergence trade between peripheral and core banks where
Spanish and Italian banks will be the biggest beneficiaries,"
said a London-based DCM banker.
Growing confidence that the sector is past the worst -
especially national champions - is also a supporting factor,
Lucette Yvernault, global credit portfolio manager at
Schroders, also expects eurozone banks to access the Yankee
market in the near future.
"The US investor base is looking to eurozone banks for
supply because they are desperate for yield and dollar funding
is quite competitive these days," she said.
European banks raise dollar debt to finance US assets, for
diversification, and sometimes because of lower costs.
Natixis parent BPCE and Credit Agricole are the latest banks
to take advantage of the better tone. BPCE made a brave foray
into the market on Thursday with its first index-eligible
offering, while Credit Agricole priced USD1.4bn of senior debt
last week, paying slightly less on a post-swap basis than a
euro deal would have cost.
Bankers are now circling BNP Paribas and Societe Generale to
urge them to follow suit. Italy and Spain are also on investor
buy lists, after some made stellar returns from BBVA and Intesa
trades last year.
"We've seen a number of Yankee deals price inside of where
they could get euro funding which has led to a bit of a revival
of issuance," said Marc Tempelman, co-head of EMEA Financial
Institutions Corporate & Investment Banking at Bank of America
"Investor sentiment has definitely turned positive towards
eurozone banks and peripherals in particular where investors are
showing a greater distinction between credits and
The opening of the US dollar debt market means banks can now
shop around for competitive funding costs, bringing down their
net interest costs.
Credit Agricole's recent Yankee venture may have allowed the
French bank to slightly cut its funding costs, but the deal also
highlighted that some investors still have trouble with the
eurozone recovery story.
Some passed because of concerns that eurozone bank
regulators could direct banks to give depositors preference over
senior unsecured bond holders in a restructuring.
One investor said he was also wary of Credit Agricole's
exposure to a variety of different European countries outside
France and the fact that it has a large retail base.
These concerns are by no means confined to Credit Agricole,
and are likely to become more commonplace if volatility picks up
in the eurozone and the threat of senior bail-in increases.
"For banks that have funding needs we are advising them to
do it sooner rather than later. There are only a number of
windows to sell deals into, and US investors have proven to
react quickly to market concerns," said a syndicate banker.