La Française: Subordinated debt
La Française: Subordinated debt
Paul Gurzal, Co-Head of Fixed Income and Jérémie Boudinet, Head of Financial and Subordinated Debt, both working at Crédit Mutuel Asset Management, share their views on the subordinated debt market environment:
'Subordinated debt markets rebounded in November, following Donald Trump's victory in the US presidential election and the drop in sovereign yields in Europe. Insurance subordinated debt gained 1.7% over the month, while AT1 EUR posted a performance of +1.1% (outperforming AT1 USD, which ended the month at +0.7%), while corporate hybrids posted a performance of +0.6%. European high-beta credit absorbed the downward trend in European rates, despite fears of tariff barriers or the resurgence of political risks in Europe (France, Germany), thanks to resilient spreads and sustained demand for corporate bond issuances.
The primary market was particularly active for CoCos, with a Restricted Tier 1 from the Bermudan insurer Athora, via its Dutch subsidiary (€ 6.75% coupon) and several AT1s: BPER Banca € 6.5%, Natwest Group $ 7.3%, Deutsche Bank € 7.375%, Société Générale $ 8.125% and Raiffeisen Bank International €7.375%. Tier 2 bank bonds also saw robust activity, with new issuances in EUR from Abanca, De Volksbank, Banco BPM, Commerzbank, Danske Bank and Intesa Sanpaolo. Corporate Hybrids similarly benefited from strong investor appetite, with issuers such as Abertis, Roquette Frères, Iberdrola and Total. It is likely that a good part of these issues will come from pre financing planned for 2025, taking advantage of current market conditions and the maintenance of solid demand momentum despite the end of the year approaching.
The M&A theme was once again the dominant theme in the financial sector:
- Banks: A delicate balancing act in Italy, where UniCredit is changing its strategy, as the takeover bid for Commerzbank is stagnating (and should drag on further at best, given the upcoming German elections). UniCredit is proposing to acquire Banco BPM, Italy’s 3rd largest bank, but has offered a price with almost no premium compared to the bank's share price, with the likely purpose of advancing its pawns. The reaction of Crédit Agricole, holding around 9% of Banco BPM, will also have to be monitored, particularly to protect its distribution partnerships in asset management and insurance. Meanwhile Banco BPM also made an offer to acquire the Italian asset manager Anima (around € 200 bn of AUM), and Banco BPM took an approximated 4.5% stake in Banca Monte dei Paschi di Siena, together with Anima. The Italian government does not seem to favour a merger between Banco BPM and UniCredit at this stage and may want instead to favour a merger with BMPS. What seems certain is that mergers will take place. The question remains, which banks will merge?
- Asset Management: Following the agreement between BNP Paribas Cardif and AXA IM, it would be the turn of Natixis IM and Generali IM to discuss a merger. Allianz would be ready to sell a majority stake in Allianz GI, and several names are cited in the press to take over this stake, including...Amundi, majority-owned by Crédit Agricole.
- Insurance: The UK insurer Aviva is offering to acquire Direct Line at a 58% premium to the smaller insurer's closing price. The management of Direct Line believes that this offer does not value the company at its fair value. A takeover bid was previously rejected in March, when the Belgian insurer Ageas tried its luck.
The race to scale is therefore accelerating in the European financial sector across all market segments, whether through pure players or large bancassurers.'