European and Spanish banks: Dominating the primary debt markets
Fecha: abril 2020
Desirée Galán, Javier Pino, Fernando Rojas, A.F.I.
MREL, Deuda senior non-preferred
Financial markets’ propitious start to the year has led to the intensification of issuance in the European and Spanish primary fixed-income markets. Issuers’ swift reactions to benign market conditions, coupled with strong investor take-up in light of ultra-low rates, has been even more apparent in the banking sector, which has been taking advantage of the momentum to address regulatory pressure deriving from the upcoming deadline for compliance with the resolution directive, specifically, the minimum requirement for own funds and eligible liabilities (MREL).Within this context, two trends have emerged. On the one hand, having maxed out the allowances for certain instruments (convertibles bonds, CoCos and subordinated debt) that dominated issuance volumes up until 2017, banks are switching to issuance of lower-cost liabilities, such as senior non-preferred debt, which qualifies for MREL purposes. In parallel, there has been a ‘democratisation’ trend in issuance, with smaller-sized entities tapping the markets more than before. According to our estimates, European and Spanish banks will need to raise another 250 billion and 50 billion euros of eligible instruments, respectively, to comply with the MREL deadline set for 2024. Thus, we anticipate banks to remain dominant layers in the primary fixed-income markets for the coming years.