Intesa Sanpaolo: At the vanguard

Italy’s Intesa Sanpaolo led the short-lived reopening of the bank capital market in the opening weeks of 2016 with $1.5bn Tier 2 and Eu1.25bn AT1 benchmarks. Here, head of treasury Camilla Tinari, explains the issuer’s approach to the markets and shares her views on the evolution of the asset class and its regulations.

What was the rational for Intesa issuing the euro AT1 transaction straight after the Tier 2 subordinated benchmark denominated in US dollars?

January is traditionally one of the most liquid months of the year. However, in January the market window available was very narrow, considering the beginning of our black-out period due to the publication of the year-end results and the Epiphany bank holiday on 6 January (which is a bank holiday in most European countries). In this context, we drew benefit from the fact that in the US market the first week of January was a full working week (being open on 6 January) and we gave priority to the Tier 2 transaction. Notwithstanding volatile market conditions at the beginning of the year, on 8 January we approached the US market with the Tier 2 transaction thanks to a favourable market window following the announcement of the NFP.

Within the scope of our Business Plan, by 2017 we envisage the issuance of Eu4bn of Additional Tier 1 to optimise our capital structure, filling the 1.5% AT1 regulatory bucket and therefore taking advantage of the various regulatory capital buckets. Having in mind our Business Plan targets in terms of total AT1 issuances, we decided to issue our first euro AT1 transaction before the beginning of our black-out period in order to benefit from the good demand for AT1 instruments.

So far, we have issued about Eu2.2bn out of the foreseen Eu4bn, but present market conditions are not a major source of concern for us as our Business Plan provides for the issuance of the remaining amount of AT1 by December 2017.

What influenced the structure of the Additional Tier 1?

The structure of the new Additional Tier 1 is the same of the AT1 in US dollars we launched in September 2014, except for the first call date, which has been set after five years for the purpose of diversification from the US dollar AT1, which has its first call date in 2025.

You did not execute any roadshow before those two major trades. Why?

We believe the structure of Tier 2 and AT1 instruments are now quite standard and well known to the investors, and as far as our name is concerned, we meet fixed income investors on a regular basis. Nonetheless, even if we did not execute any specific roadshow, in the context of the AT1 transaction we held a global investor conference call and we were available for one-to-one calls with investors. In addition, we distributed the marketing material to the investors through the “net roadshow” platform.

Were you satisfied with the result and the granularity of the order book?

Yes, we are satisfied. The Tier 2 transaction gathered momentum and built up a solid and granular book, attracting a high quality and well diversified investor base. High investor interest allowed us to price a final $1.5bn size at T+360bp, the lower bound of the guidance range.

The Additional Tier 1 transaction built up a solid final book, too, which closed at 12:30 with orders in excess of Eu3.25bn. High quality investors and the granularity of the book allowed us to set the final size at Eu1.25bn with a coupon of 7%.

Did you feel significant differences between the euro and US dollar transactions?

Although the structures were different, we noticed good demand from investors both in Europe and in the US. In particular, the new Tier 2 deal confirms our strong placing power on the US market and the validity of the strategy which dates back several years, with our first Yankee deal issued in summer 2010.

This is an important competitive advantage: we are the only Italian bank and one of the few European banks to have an MTN programme dedicated to the US market.

The timing of the transactions was extremely favourable given the evolution of the Additional Tier 1 market after the execution. In your opinion what was the main driver of the turmoil?

The implementation process relating to TLAC/MREL mechanisms immediately after the Novo Banco/BES case caused concerns among investors. In addition, we believe the high volatility in the first weeks of 2016 has also been due to macro issues (such as China growth expectations, oil price decline and so on).

What is your opinion about the current evolution of the bail-in regulation in Europe in general and in Italy in particular? Were you surprised by the recent move and position taken by the Bank of Italy?

The introduction of the new regulatory framework relating to the absorption of losses and bank recapitalisation cast doubt among investors and, consequently, induced pressure among investors not only around the bail-in mechanism but also around the non-harmonised introduction of the BRRD among European countries. Furthermore, investors express their concern about the national authorities’ discretionality (such as in the Novo Banco/BES case).

The new regulatory framework will induce investors to focus more and more on issuers with the best credit and capital profile. In a nutshell, the cost of funding will be affected but such an increase will be more significant for smaller issuers with limited access to the institutional markets.

In any case, the non-harmonised introduction of the BRRD together with the unclear picture about the TLAC/MREL implementation features might have a larger impact on issuers based in riskier countries.