Having recently embarked for the first time on their minimum requirement for own funds and eligible liabilities (MREL) journeys, many second tier banks still have plenty left to do.
Some of them had hoped to visit the market in the coming weeks, but conditions are such that it is shut to all but national champions issuing defensive products. Credit default spread indices are hovering at their highest levels since the first round of coronavirus lockdowns in spring 2020.
Banks often like to round off their funding programmes during the first half of the year. That might not be so easy in 2022.
The year is still young, with roughly nine months left to run. But as the last fortnight has shown, this does not translate into a nine month issuance window.
Smaller, less well-known issuers might therefore have to look beyond their traditional schedules and make use of alternative and unconventional methods.
Every little helps
Before full-scale war broke out in Ukraine, GlobalCapital was already suggesting that banks might want to make more liberal use of the MTN market, given the unpredictability of issuance windows this year.
Smaller banks are, of course, no strangers to using the format to top up their regulatory funding. For instance, Novo Banco, rated Caa2 by Moody’s, found demand for a €275m 4.25% September 2023 non-call September 2022 preferred bond on December 13, helping it to replenish its MREL levels ahead of the interim deadline.
The Portuguese lender was not alone, with fellow sub-investment grade issuer Alpha Bank (Caa1/B-/CCC+) selling a €400m 3% December 2024 preferred bond a week earlier.
But even smaller lenders cannot rely on this product for the bulk of their needs. And anyway, the MTN market is not a 'Get Out of Jail Free' card. It can sometimes be closed to peripheral lenders, too.
Perhaps, then, even more weird tricks are needed.
Opening the window in summer
Here's one for bank treasurers to try on for size.
If they cast their minds back to the run-up to Christmas 2020, they will recall that after 10 months of heavy volatility, portfolio managers showed were able to drag themselves away from wrapping presents for long enough to buy a few bonds. A trio of low grade Italian lenders dipped into euros in early December, raising €1.4bn between them, having found €3.4bn of demand.
These banks found themselves printing into a relatively quiet market, with only two other lenders issuing in euros that week, according to GlobalCapital's archives.
Could banks be able to exploit similarly favourable conditions during a traditional summer break?
Of course, summer is still four or five months away, the first buds of spring having yet to bloom. Who knows what will be going on in July and August? But funding officials mapping out their plans for the rest of 2022 would perhaps be prudent to keep this period in mind, and even hold off on booking their vacations.
The height of summer is conventionally a barren season for FIG issuance in euros. Over the first three weeks of August last year, for instance, not a single firm opted to access the euro market, though several national champions ventured across the Atlantic.
A smaller funder, fresh from reporting second quarter results in late July, may well find itself in an enviable position to print around that time this year.
With many issuers still to break their ducks this year, could those who need to print at modest size step up to quench the seasonal drought? They would likely have the market to themselves, and even if some investors are away from their desks, there would likely be enough of an audience for a slim transaction.
Perhaps, if they are truly committed to meeting their funding goals, treasurers with trickier credits to sell might have to forgo the beaches of Bali for the corridors of Frankfurt, at least in the high season. Then, with funding safely tucked away, they might be able to enjoy a real break in the last week of August or the first week of September with greater peace of mind.