Banco Popolare (BIT:BP)
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2 Years : From Sep 2012 to Sep 2014
By Ben Edwards
Italian lender Banco Popolare SC (BP.MI) and UniCredit Bank Austria shelved plans to sell bonds late Monday after failing to attract sufficient demand amid a weaker backdrop for riskier debt.
Banco Popolare was seeking to sell a 500 million euro ($649.1 million), 3.5-year bond--its first senior unsecured debt sale since March 2011. The bank, which is rated one notch above junk by Moody's and Standard & Poor's, was offering to pay investors around 390 basis points over the reference midswap rate, 60 basis points less than similarly rated peer Banca Monte dei Paschi di Siena (BMPS.MI) sold two-year paper for only last month.
In contrast, Italian flagship bank Intesa Sanpaolo SpA (ISP.MI) Monday offered investors 315 basis points over midswaps for a seven-year deal, attracting almost EUR5 billion of demand.
"The market has opened up for more Italian and Spanish banks, but there remains a clear preference for the top-tier names in these countries," said Michael Symonds, a credit analyst at Daiwa Capital Markets.
Given that Banco Popolare sits on the cusp of investment grade, the lack of demand was more of an issue with the name and the challenges the bank faces as a second-tier Italian bank as opposed to the cost of the bond, Mr. Symonds added.
UniCredit Bank Austria, a subsidiary of Italian lender UniCredit, was seeking to sell its debut senior unsecured bond Monday, offering investors about 150 basis points over midswaps for a five-year deal.
That is 240 basis points less than UniCredit Italy paid for three-year money last month, although that price disparity is partly because the Austrian division is rated two notches above the Italian parent at A3 and A by Moody's and S&P, respectively.
But even a superior credit rating may not have been enough to reassure some investors given the link to its Italian parent and the ongoing uncertainty for issuers domiciled in the euro-zone's fiscally frail regions.
"[The bank] remains an operating entity of UniCredit Group, and as such is not totally immune to developments in southern Europe, so investors may have felt that at 150 basis points over swaps, they weren't being adequately compensated for that risk," said Brian Barry, fixed-income analyst at Investec.
Monday's weaker market backdrop may also have been a factor in deterring investors, analysts say, with the cost of insuring European bank debt against default rising.
The iTraxx Europe Senior Financials index, which comprises 25 high-grade banks and insurers, ended the day five basis points wider at 183 basis points, according to data provider Markit.
"We are still some way from a return to normal market conditions so it's not altogether surprising to see some deals run into trouble, particularly against the backdrop of a weaker day for risk assets," Mr. Barry said.
Write to Ben Edwards at email@example.com