Intesa Sanpaolo

Investors appeared to be more sensitive of price movements in new issues of covered bonds this week, with valuations in the asset class having returned to within touching distance of their January levels.

BPER Banca said on Monday that it would buy more loans and branches than expected as part of its involvement in a potential tie-up between Intesa Sanpaolo and UBI Banca. The merger process hit a snag last week, but market participants hope that a deal can still be agreed.

Transition bonds were the hot idea of 2019 in green finance circles, appearing to offer a way to expand themed bonds to a much wider range of issuers. But the product has struggled to gain momentum. This week’s deal from Snam, the Italian gas grid company, confirmed that it has an audience, among both issuers and investors.

UniCredit jumped into the euro market to raise senior funding at a pricing level it found much more familiar than recent elevated levels this week, while BPER Banca gave investors their first chance in several months to buy a new issue from a second tier Italian bank.

Market participants expect European banks to take a large chunk of funding through the European Central Bank’s Targeted Longer-Term Refinancing Operations (TLTRO III) programme, hitting covered bond supply levels. But issuance in other asset classes should remain unaffected as banks follow through with their funding plans.

BPER Banca opened books for its inaugural sale of senior debt on Wednesday, giving investors their first chance to buy into a new issue from a second tier Italian bank during the Covid-19 pandemic.

Intesa Sanpaolo was able to pick up competitive terms on a new tier two this week, after bringing a deal in the sterling market that had already been wall-crossed and underwritten by Morgan Stanley.

Ferrovie dello Stato Italiane, the Italian state railway holding company, has signed a €600m loan package that includes an environmental element. Europe’s loan borrowers are following the bond market away from pandemic crisis funding and back towards sustainability-conscious financing.

The European Central Bank said this week that Covid-19 could hamper some banks from meeting their targets for the minimum requirements for own funds and eligible liabilities (MREL), given the likelihood of credit rating downgrades and dislocation in the funding markets.

A series of comeback trades has established firm demand for every debt class in the bank bond market. With credit spreads moving another leg tighter this week, issuers must now consider whether they have a precious opportunity to wheel out their riskiest transactions with the coronavirus pandemic still threatening society and capital markets. Tyler Davies reports.

Bank balance sheets are set to expand and Intesa's will be no exception. It will mean an an increased reliance on central bank funding. But apart from this, the Italian bank's mix of funding is likely to remain unchanged from February with the emphasis on regulatory capital. But as Alessandro Lolli, head of group treasury and finance told GlobalCapital, the bank has great flexibility in navigating its capital raising during the pandemic.

Fitch cut the ratings of four Italian banks this week, triggering underperformance in the market and pushing some non-preferred senior bonds into speculative grade territory.