La Banque Postale in €750m AT1 milestone

La Banque Postale achieved one of the lowest ever coupons on a euro AT1 with its debut issue on 13 November, a €750m perpetual non-call seven that attracted a peak €3.5bn of demand, but also demonstrated the price sensitivity of investors in the low yield environment.


The €750m debut fully meets La Banque Postale’s limited Additional Tier 1 requirements, replacing AT1 provided by parent La Poste that was converted to equity in the first half of 2019, according to Stéphane Magnan, head of corporate and investment banking at La Banque Postale.

“We had this empty AT1 bucket,” he said, “so we thought that it would be a good idea to issue an AT1 on the market to optimise our capital structure and diversify our investor base.”

The deal comes as CNP Assurances is being fully integrated into La Banque Postale in a transaction set to close next year, and the creation of the new bankassurance group was a topic in premarketing of the AT1 from Friday, 7 November, after plans for the debut were announced the previous day.

“The key messages that we wanted to convey to investors,” said Magnan (pictured below), “were firstly, that La Banque Postale presents a very low risk profile, supported by French state ownership via La Poste, and secondly, that we have an increasingly diversified model rooted in a strong domestic footprint that is going to be strengthened by the transaction with CNP.”

LBP MAGNAN Stephane web

The following Wednesday, La Banque Postale’s leads went out with initial price thoughts of the 4.25% area for the perpetual non-call seven euro benchmark AT1, rated BB/BB (S&P/Fitch). After around an hour and five minutes, they reported books above €1.5bn, and after around two and a half hours set guidance at the 3.875% area, plus or minus 12.5bp, will price in range, on the back of books in excess of €3.5bn, including over 260 accounts. The deal was ultimately priced at 3.875% and sized at €750m, the upper end of the issuer’s target, with over €1.7bn of orders good at re-offer. It enjoyed a strong domestic bid, with France taking 36% — the deal is the first French euro AT1 since 2015 — while typical AT1 investors lent their support.

“This AT1 was a key milestone for La Banque Postale in the context of the CNP takeover,” said Vincent Hoarau, head of FI syndicate at Crédit Agricole CIB. “It was also a remarkable achievement in terms of pricing, breaking the psychological 4% threshold despite softer market conditions.”

He said the new issue premium was limited and noted that the coupon is the fourth lowest on a Basel III Tier 1 hybrid instrument, after Rabobank (3.25%), Nordea (3.5%) and Belfius (3.625%).

“The bonds traded above par on the break and it is very stable in the secondary market,” added Hoarau.

Almost half of orders nevertheless fell away as the deal was tightened to the re-offer, and Dominique Heckel, head of long term funding at La Banque Postale (pictured below), attributed this to the rate environment.


“If we look at the volume of issuance, particularly in euro AT1, it has been very low, while many investors, struggling to achieve a decent return on their investments, are on the hunt for yield,” he said. “But the fact we are at very low levels has made investors a bit more cautious and they won’t accept just any price.

“We also wanted investors to have a fair deal and to leave room for some performance on the secondary market.”

Magnan attributed part of the apparent price sensitivity to the European convention of moving pricing by steps of 0.125% in the AT1 market.

“This is not very efficient,” he said. “The price discovery process could have been better and the outcome different if we had been able to move the coupon by a couple of basis points rather than one-eighth, because we don’t know exactly what was the price sensitivity of the investors.

“In US dollars the AT1 market already works in decimal points and not one-eighths. The US equity market adopted decimalisation in 2001 and we are now in 2019 — it’s about time we changed.”

The transaction was only the second AT1 from a Eurozone bank to include a “six month par call” feature, with La Banque Postale able to call the instrument from May 2026 until the first call and coupon reset in November 2027.

Nationwide Building Society in September issued the first AT1 to incorporate the feature, but in spite of the relative novelty of the feature, few investors asked questions about it, according to Magnan.

“We explained that we think it’s a win-win situation,” he said, “whereby we try to optimise and maximise the probability of the call because we can issue a refinancing deal in the six month period before the reset date, then call the existing AT1 so as not to pay two coupons at the same time.”