Santander reopens Tier 2 post-ECB, Commerz follows

Santander on 15 March reopened the Tier 2 market in the wake of the European Central Bank’s boost to its QE programme the previous Thursday, and Commerzbank was able to successfully launch a long-planned Tier 2 benchmark the next day.

Banco Santander’s Eu1.5bn 10 year non-call five transaction on the Tuesday followed a $1.5bn AT1 for UBS the previous day (see lead article), but was the first European Tier 2 issue since BNP Paribas on 4 March sold a Eu750m long 10 year Tier 2 that was in turn the first such benchmark since January.

The Spanish bank moved quickly ahead of other anticipated supply, according to a banker at one of the leads, and was able to attract some Eu3.1bn of orders from some 200 accounts, allowing an increase in the size of the trade to Eu1.5bn and a tightening of the spread from initial price thoughts of the mid-swaps plus 275bp area to a re-offer of 268p.

“Santander took advantage of a move tighter in its secondary curve following the ECB’s actions, and moved forward towards filling the 2% Tier 2 bucket to optimise its capital structure,” he said.

The banker attributed the strong demand for the paper to the choice of structure and tenor, as well as the credit’s broad support from investors. Santander’s benchmark was also the first Tier 2 issue from Spain of the year.

The next day, Commerzbank issued a Tier 2 transaction that had initially been mandated in January and then roadshowed. The deterioration in sub debt markets combined with internal matters at Commerzbank — including the appointment of new chairman Martin Zielke (pictured) on 6 March, and its blackout period — however, delayed the new issue. Meanwhile, the German bank also enjoyed upgrades from S&P and Fitch.

Commerzbank was then able to tap into the post-ECB market with its Eu1bn 10 year trade and attract Eu2.3bn of demand, with pricing tightened from IPTs of the 360bp area to 340bp — equivalent to a new issue premium of some 10bp-15bp.

Viet Le, financial institutions syndicate manager at Crédit Agricole CIB — joint books with Barclays, Commerzbank and UBS — said investors had shown themselves keen to buy into Commerzbank’s recovery story.

“Broad market stability and increased conviction from investors in terms of adding risk allowed us to proceed with what was ultimately a very successful transaction,” he added, “paying a tight concession in the context of recent comparable transactions.”

He said that the size of the order book allowed Commerzbank to comfortably hit the upper end of a Eu750m-Eu1bn size range that was under consideration.