EU FINANCIALS: AT1/RT1 September Issuance Review

We Review Septembers AT1/RT1 issuance and performance since issue.

• Early in September saw a trio of USD issues come to market. We assigned all three a 1/8th NIC and all three have performed.
  • The INTNED came wider than it might have done due potentially to some confusion around the floating rate of its nearest comp, the INTNED 4.25% perp. This bond floats over the constant 5y UST, while the new issue floats over the 5Y Swap. We highlighted this in our note.  https://mni.marketnews.com/4gQrwfk
• CABKSM as a name in AT1 space performed well in the latter half of September, with the main comp for the CABKSM 5.875% Perp also up 1% since its issue.
• RBIA's performance since issue has been lackluster. The new bond priced c.10bps wide of the DB 7.125% Perp. It is now c.50bps wide of that same DB bond.
• Our FV on NWG was based on a cautious view of the steepness of the AT1 curve in GBP from 5-10 years. This curve segment now looks flat, in line with EUR and USD.
• We were surprised by both the pricing and performance of both RT1 issues this month - and in the same vein the relative underperformance of the RT1 secondary market vs AT1's given the new issue pricing.
  • SAMPFH 5.25% Perp looks stretched, trading inside AXA 6.375% Perp, while having over a year longer to call, 118bps lower float spread, a 2 notch worse rating at Moody's and 1 notch at S&P
  • The situation in SAMPO Tier 2 bonds is also interesting. The SAMPF 2.5% 2052 has not sold off post the tender, where one may expect it to have done. However, Sampo still has >€700m room in its AT1 bucket, and further issuance may see further tenders, allowing the bonds to stay somewhat anchored to their new lower spread level.