UBI reopens Tier 2 for Italians with Eu750m deal

UBI Banca launched the first Italian Tier 2 issue of 2016 on 27 April, a Eu750m 10 year non-call five deal priced at 4.25% from IPTs of the 4.5% area on the back of a Eu1.5bn book featuring some 180 accounts. Here, Giorgio Erasmi, head of funding at UBI Banca, discusses the reopener and its background.

UBI had not been in the subordinated wholesale market for a long time. What was the rationale for the new deal?

We issued the new Tier 2 to maintain a Total Capital Ratio in line with our target range of 14%-15%. Before the transaction our Total Capital Ratio was in the lower part of our target; now it’s 14.9%.

Market conditions were not obvious — what gave you the confidence that you could get the trade done?

During our marketing exercise we approached 100 investors! We met investors with an explicit interest in the Tier 2 asset class and the key one-on-ones were in Italy, London and Paris.

After the Atlante announcement there has been a reduction in volatility and market conditions were more stable, and we exploited that market window.

What are international investors’ main concerns on Italy?

The main concerns were around NPL management and M&A. Thanks to Atlante’s backstop on BP Vicenza and Veneto Banca, the “capital increase story” was not the main focus anymore.

Did the roadshow help you refine the transaction’s features? How did you go about positioning the credit?

We started with a 10NC5 structure, allowing greater flexibility and with a target size of Eu750m. Positioning the credit was challenging due to the lack of a UBI Tier 2 curve. Looking at spreads, the main comparables on the market were Intesa Sanpaolo and UniCredit, but our reference point was Intesa rather than UniCredit because we have similar business models.

How did the transaction go? Were you satisfied with the amount, pricing and demand?

It went well. We reached all our targets thanks to the interest we got from investors — a Eu1.5bn book with 180 orders.

How have the new bail-in rules affected your capital funding through the retail channel? Is it a temporary “ban”?

On the senior retail bonds side, customers are rolling roughly 60% of what is maturing — this is also in part due to the low rate environment and to the focus of customers on higher yield investments.

On the Tier 2 side, at the moment our view is to sell our Tier 2 only to institutional investors. We can’t rule out for the future that the retail market, with clearer disclosure and awareness, could again be viable for subordinated products, since higher risk products in general, such as equity, are purchased by retail customers.

What is your view on the role played by the Atlante fund? Did it indirectly helped your trade?

Yes, as mentioned, Atlante reduced investors’ concerns on capital increases from the two banks in the Veneto region. Without this backstop the market volatility would have been much higher.

What more could be done to fix the NPL issue?

The implemented measures (GACS, Atlante, the speeding-up of repossessions…) are all steps in the right direction. With time these will bear fruit.

What do you expect in terms of final MREL requirements? What is your opinion of the Italian solution regarding eligible liabilities?

We don’t have any specific expectations/figures regarding MREL — around 15% for the Total Capital Ratio is our main target. We find the new French non-preferred senior option an interesting solution given the fact that it introduces a further instrument, junior to senior bonds, with a cost lower than Tier 2.