LONDON, April 23 (Reuters) - Investment banks that managed record bond issuance this week for Italy and Spain will enjoy a bumper payday, with fees likely to be in the region of a combined 50 million euros ($54.2 million), sources familiar with the transactions told Reuters.
Italy issued 16 billion euros of bonds on Tuesday and Spain followed that with 15 billion euros of debt on Wednesday as the two nations begin to address the massive increase in funding needs to see them through the coronavirus crisis.
Both deals were of a record size for their respective countries.
In funding their coronavirus stimulus programmes, government borrowers are relying much more heavily on syndications, helping them to target a bigger investor base and larger issuance.
Syndications offer banks attractive fees that are typically calculated as a percentage of the total issue, with higher fees on longer maturities.
Italy’s bond issue resulted in fees of about 4.3 million euros for each of the six banks who managed the trade, said two sources who work with the primary dealers.
Spain’s bond issue paid a fee of 26.25 million euros, given a sector-wide 0.175% fee for a 10-year sovereign syndication, an economy ministry source told Reuters.
The six lead banks received about 85% of that - roughly 3.7 million euros per bank - and 15 other underwriters received the rest, the source said.
Banca IMI, BofA Securities Europe, Deutsche Bank , JP Morgan, Nomura and Societe Generale managed the Italy deal, while Barclays , BNP Paribas, Citi, HSBC, JP Morgan and Santander managed the Spain issue.
“The size of these deals is such that we are seeing the fee pot is quite high. With increased funding needs in Europe, this will likely continue,” said one of the primary dealer sources.
Euro zone government debt will surge this year on the coronavirus pandemic, according to the International Monetary Fund, which expects Greek debt to leap almost 22 points to 200% of GDP, with Italy up almost 21 points at 156% and Spaing rising 18 points to more than 113%.
All these countries raise money through a mixture of debt auctions and syndications. In auctions, the governments sell debt to primary dealers — banks appointed to help them manage their debt — and in syndications they appoint banks to sell directly to investors.
“The fees have been massive this week, but you have to remember that we have lost money on auctions along the way,” said the second primary dealer source. “We are underwriting these deals after all and supporting auctions through this period.”
Banks are usually appointed from primary dealers that support debt auctions and are paid a fee for managing such transactions and providing liquidity.
“Secondary market liquidity is essential for the primary market to be attractive; it is a public good, a service to the market, that the issuer rewards by paying fees to the winners of this competitive contest,” said the Spanish economy ministry source.
An Italian Treasury official declined to comment on the exact figure paid to the banks but added that there was no change in the fee structure from previous placements and that they are calculated as a percentage of the amount and vary depending on the maturity. ($1 = 0.9231 euros) (Reporting by Abhinav Ramnarayan and Yoruk Bahceli; additional reporting by Stefano Bernabei in Rome; editing by Rachel Armstrong and David Goodman)