September 6, 2017 / 2:29 PM / in a year

Summer rally lures Lloyds back to euros

LONDON, Sept 6 (IFR) - Lloyds Banking Group sold its first fixed-rate euro senior of 2017 on Tuesday, highlighting the competitive pricing on offer in the single currency versus the US dollar market following a strong summer rally.

The UK bank extended its curve with a €750m 10-year (Baa1/BBB+/A+), pricing at mid-swaps plus 80bp on books over €1.25bn.

“It’s probably the first time this year European levels have been more competitive than US dollar levels, so the primary driver was to lock in what we thought were favourable and attractive spreads,” said Peter Green, head of senior issuance at Lloyds.

The UK lender was one of the first European banks to hit the US dollar senior market this year, taking advantage of a significant cost-saving versus euros.

But European banks have been largely absent in dollars since the market reopened after the summer, reflecting an underlying shift. LBG’s euro 1% Nov 2023s rallied from swaps plus 110bp to plus 40bp between June and August, though have since widened to 56bp.

“It’s notable that the compression over the summer has been greater in Europe than in the US,” said Green.

“Pricing hasn’t worsened in the US, but pricing in euros has got better, and quite dramatically so over a short space of time.”

A banker away said the deal landed in the right place but he was surprised it did not garner more demand. Starting at 90bp area rather than in the mid/high 80s would have helped on a busy day, he said, particularly when a Belfius five-year (Baa3/BBB Moody’s/S&P) was coming at 62bp.

Green said he was pleased with the outcome, given the primary aim of locking in competitive spreads.

“We don’t have a huge amount of funding to do this year, so we’re pleased with the size and the price.”

Appetite for 10-year holdco and senior non-preferred paper from European banks has been largely untested this year, with US and Japanese holdco debt accounting for the lion’s share at this point on the curve.

Credit Agricole is one of the only European banks so far to have issued a 10-year SNP, despite the likes of SMFG, Wells Fargo & Co and Morgan Stanley having no issues raising debt in this maturity.

That dearth of supply is perhaps not surprising while the European market for loss-absorbing senior is still growing, said the second banker.

“I think people are still in the phase of doing their inaugural trades and building out their curves, starting with five to seven years,” he said.

“I also think pricing in the dollar market in 10s has been a lot more attractive versus euros until very recently, so the likes of Santander and RBS have all done dollars in that part of the curve rather than euros. I don’t think, per se, there are any issues with doing euros.” (Reporting by Alice Gledhill; Editing by Philip Wright)

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