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
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