LONDON, April 19 (IFR) - Spanish bank treasuries are
beginning to target other peripheral financial institutions'
debt to profit from their own cheap ECB funding and to diversify
away from their home market.
A EUR250m tap from Italy's Intesa Sanpaolo this week - the
first peripheral FIG issuer since the Cyprus bailout - provided
the first real evidence of this.
Spanish accounts bought 43% of the deal and banks were the
largest investor type, taking the lion's share of the deal at
58%. Iberian interest was notably higher than the 12% seen in
Intesa's previous euro bond in January.
"Investors in Spain and Italy have always been the main
supporters of their domestic bond deals, but now they are
looking to match their funding costs by achieving a positive
carry away from their own banks," said a London-based syndicate
Looking at the figures of Spanish bank borrowing from the
ECB, the logic behind the shift is clear.
Spanish banks took roughly EUR260bn of ECB loans through the
central bank's EUR1trn twin LTROs. So far, they have said that
they either have, or will, pay back a total of just under
EUR50bn this year, according to Reuters data.
That's leaves EUR210bn of liquidity in bank coffers that
needs to be put to work.
NATIONAL CHAMPIONS IN DEMAND
Spanish and Italian banks have ploughed excess liquidity
into high-yielding domestic sovereign bonds in carry trades that
reinforce the linkages between state and financial sectors.
By broadening that strategy to include national champions in
other peripheral countries, bank investors can also pick up
In the case of Intesa, bank investors would have earned a
little under 1% on the bond that priced at 3mE+150bp with a 1.7%
yield (current Euribor rates). The ECB now lends cash to banks
at a rate of less than 0.75%.
"They certainly aren't going to be getting these kinds of
profits from Nordic banks," said a banker.
"Investors' move to diversify is just another twist on that
quest for higher net interest margins but the concern is they
won't find sufficient volume to meet their demands."
There hasn't been a single new benchmark bond issued from a
peripheral bank since the Cyprus bailout. Spanish, Italian,
Irish and Portuguese banks are focused on deleveraging, and
because they can obtain cheap funding through the ECB, they are
unlikely to rush to capital markets where funding is more
"There is certainly demand for names like Intesa, but they
(issuers) might not be willing to pay the necessary spread," he
"Investors are going to be looking for compensation for the
risk they are taking."