Bond Alert : Unicredit SPA SGD Sub Debt
It is all grey and getting murky grey in the european bank bond world.
The Cyprus deal is setting a dramatic precedence for the bank bond market and its the senior debt holders who should be cowering now.
Unicredit just did a sub debt in SGD a couple of months back and the price has been marked on the high side at 98/99 level on this SGD corporate bond indicative price page on Bloomberg . The real market is much lower. We are talking about 95 to 97 level.
Not to raise any alarm bells because I would really like to see any SGD bond holders take on the Italian courts on the loss absorption clause yet Cypriot bank depositors were definitely not told when they opened a bank account that their money could be subpoenaed from them unless they went to made that deposit in the London or Greek branch of their local banks.
The constant changes to the rule books are starting to get slightly dreary for the markets and the SNS bankruptcy last month has rattled the sub debt market.
We have 2 european bank subs issued recently. ABN 4.7% 10/2022 rated BBB (callable 2017) and Unicredit Spa rated BBB/Baa3 5.5 07/2023 (callable 2018).
ABN is trading 103.25/103.50(3.92/3.86%). Unicredit is not so lucky.
But if the Cyprus deal does tell us anything, we better make sure the country can bail the banks out too.
I have been following UniSpa situation closely. I might take a punt on it if the price falls further and flipped it. I’m still pretty bullish that EU will find a way out from the big mess.
Further points about UniCredit and ABN: ABN has been owned by the Dutch state since the 2009 financial crisis. Netherlands is still rated Aaa/AAA. While UniCredit remains for now owned by the private sector and risks being bailed out and/or bailed in (for sub debt holders) or worse…
Agree.
Unfortunately, in bank bailouts, given the construct and design of Subs, I don’t expect Sub holders to be protected like the Seniors.
Cyprus proves that senior holders(aka depositors) are not safe and now that they are pushing the “bail in” language for senior debt holders to be implemented in 2018 if approved.
The loss absorption provisions do not apply even though Basel kicks in this year because they pushed the notes under Italian law over here. As to whether it will stand when the music starts playing, it is yet untested.
Everything issued from 2013 should be under covered so using the Italian law cover is sneaky, imo.
The Italian law cover is probably more of a conflicts of law instrument to make the appropriate forum determinate. The principle of subsidiarity applies however as a member of the EU. It is Basel’s deliberate intention for subs to take the hit, so sub holders should expect losses when shit hits the fence. In the political economy of the Eurozone, Cyprus, like Greece, is no Italy. But if the expectation is for the Eurozone to muddle through and remain intact, the pick up in yields for subs is perhaps proxy for the binary risks.
Yes. Misrepresentation if you ask me because the termsheet said no loss absorption.
And guess what ?
Financial institutions did not buy it which is why 76% of the Unicredit deal went to PB on leverage.
I had that hunch and thanks for confirming. Other than prop desks taking a punt, I am pretty sure that no bank capital would touch it, even more so when it’s SGD. Don’t expect much appetite from real money either. European financials are almost a “no fly” zone.
I’m not familiar with the SGD Unicredit LT2 Sub, but just saw in the final terms, “The loss absorption provisions….shall not apply to the Notes.”