LONDON, July 1 (IFR) - Fixed income investors are beginning early preparation for a potential Additional Tier 1 bond from BNP Paribas that they expect to emerge this Autumn, after the bank agreed to pay a fine of almost US$9bn.
Although Chief Financial Officer Lars Machenil at BNP Paribas said there was “no rush” for Additional Tier 1 funding, on an analyst call on Tuesday, he added that “it does not mean that we might not do something opportunistically”.
France’s largest bank had not been expected to make an appearance in the Additional Tier 1 market this year, as its core capital adequacy ratio stood around 10% at the end of June, consistent with its long-term targets.
However, now that the bank has been forced to swallow a US$8.9bn fine, leaving a significant dent in its balance sheet, investors believe it will eventually be spurred into action.
“The fine will probably have accelerated their plans to issue Additional Tier 1, but apparently they are in no rush,” said Robert Montague, a senior investment analyst at ECM Asset Management.
The fine has done little to spoil investor appetite for BNP Paribas risk, with its outstanding bonds holding steady in the secondary market and its CDS one of the best performers of the day, quoted 3bp tighter at 71bp.
“We are thinking about the pricing of a trade from BNP Paribas that is still likely to come tighter than Societe Generale and slightly tighter than Credit Agricole, but it will depend a lot on currency and maturity,” said Montague.
European banks have been actively topping up their capital buffers with Additional Tier 1 bonds since the market opened last year, as it provides a cheaper source of capital than equity for improving their leverage ratios.
The market is also ripe for issuance for a name like BNP Paribas. Its two French rivals, Credit Agricole and Societe Generale, have already issued Additional Tier 1 paper, utilising various structures and currencies.
Some of these bonds have performed by around 100bp since pricing and are now quoted at a yield of around 5.45%-5.85%, according to a syndicate banker, and provide obvious pricing points for the BNP Paribas.
Societe Generale has raised over 5bn-equivalent through the US dollar and euro Additional Tier 1 markets. While Credit Agricole has issued 2.8bn-equivalent through the euro, US dollar and sterling markets.
“Credit Agricole and Societe Generale are under the same kind of investigation as BNPP, so the latter will still have a pricing advantage,” said an investor.
Reuters reported that Credit Agricole and Societe Generale, Germany’s Deutsche Bank and Citigroup’s Banamex unit in Mexico are among those being investigated for possible money laundering or sanctions violations, according to people familiar with the matter and public disclosures. (Reporting by Aimee Donnellan; Editing by Alex Chambers and Philip Wright)