LONDON, Sept 11 (IFR) - Credit Suisse is expected to price a euro-denominated Tier 2 contingent capital transaction later on Wednesday, the first of its kind in the single currency, and potentially opening a deep seam of liquidity for banks seeking to raise capital.
The issuer opened books with initial price thoughts at mid-swaps plus low 400s. Guidance was unchanged at the first update, with books at the time standing at more than EUR2bn.
Up until this deal, banks and insurance companies alike have mainly focused on the dollar market to bring capital deals.
"We have been saying for a while that given how the aggregate demand has shifted towards institutional investors in Europe that a euro deal would work," said a head of hybrid capital.
"Private banks have taken a step back as their bid has shifted to equities, and we have seen institutional investors become a lot more constructive on the product."
Another hybrid specialist added that a number of projects that had been considered as dollar Reg S deals could now come out as euro issues instead.
"It's suitable for a bank like Credit Suisse to open that market given that it is such a well-established issuer in that market," the banker said.
A USD1.25bn Additional Tier 1 issue for Societe Generale that priced in early September saw 62% sold to asset managers, for example, while the proportion sold to private banks was a mere 20%, much smaller than what banks had become accustomed to. Meanwhile, the Asian investor base, which had an insatiable bid for the product, has pulled back, only buying 9% of the Societe Generale trade.
For a long time, institutional investors were reluctant to buy total loss bonds such as the one Credit Suisse is offering, fearing they would potentially get wiped out, while shareholders, albeit heavily diluted, would keep a stake in an institution.
"Their view now is that the difference between a low-trigger CoCo and a more vanilla Tier 2 is not so big and that these deals will get hit at the point of non-viability anyway," the banker said. "On the other hand, there is a greater degree of reluctance to buy a product where you see share dilution on the downside."
Under the terms of the new deal, investors would lose everything if Credit Suisse's Common Equity Tier 1 ratio falls below 5% or if the bank is declared non-viable. The bank's second quarter Common Equity Tier 1 ratio stood at 14.9%.
CS is sole bookrunner, with Banca IMI, Commerzbank, RBS and Wells Fargo as joint-leads.
The new issue premium versus plain vanilla Tier 2 was estimated at around 150bp, which bankers said was very generous. (Reporting by Helene Durand, Editing by Julian Baker, Sudip Roy)