Crédit Mutuel AM: Subordinated debt

Crédit Mutuel AM: Subordinated debt

February 12, 2025

Fixed Income
Obligaties (02)

The beginning of the year was turbulent, with sovereign rates moving upward in anticipation of Donald Trump's inauguration and very favorable macroeconomic figures in the United States, contrasting with a lackluster sentiment in Europe.

The trend reversed in mid-January, with rate and credit markets regaining their 2024 momentum, showing strong appetite for corporate bonds, particularly in the highest "beta" segments, namely bank AT1 CoCos and High Yield. AT1€ ended January at +1.7%, compared to +1.4% for AT1$.

Insurance subordinated debt, which had fallen by more than 1% during the first half of the month, eventually partially recovered thanks to easing European rates, recording a performance of +0.7%, matching Corporate Hybrids, which fluctuated less due to lower sensitivity to interest rate variations.

Primary markets were very active, as is customary at the start of the year. For AT1s, we note new issues from BBVA, AIB, Standard Chartered, CaixaBank, and Aareal Bank, all refinancing issues with early redemption dates ("calls") in 2025. Notably, German bank Aareal Bank finally refinanced its single AT1, which has an annual call option that it hadn't exercised since April 2020. We estimate that almost all securities callable in H1 2025 have already been refinanced. Regarding Corporate Hybrids, primary activity was concentrated in the first two weeks, with 7 issues from 5 different issuers (Enel x2, ENI x2, Lufthansa, La Poste, Iren SpA).

The M&A theme in the European banking sector continues and is intensifying particularly in Italy. It's now Banca Monte dei Paschi di Siena (BMPS)'s turn to enter the arena, surprisingly launching a takeover bid for Mediobanca, with which it shares little business overlap, the latter being primarily an investment and wealth management bank. The stock market coldly received the announcement, seeming skeptical about the mentioned synergy targets and perhaps about the true reasons for this move.

Mediobanca and BMPS share common minority shareholders, who could be maneuvering in concert with the Italian State, still a BMPS shareholder. Mediobanca also owns 13% of Generali, which is partly owned by the same minority investors who - according to the press - view unfavorably the merger between the Italian insurer and Natixis in their asset management activities, signed in January.

To top it all, UniCredit, also involved in attempts to increase stakes in Commerzbank and Banco BPM (the latter having announced plans to acquire Italian asset manager Anima just 2 months ago), announced a few days ago that it had taken a 4% stake in Generali. The major maneuvers may just be beginning for the Italian financial sector, but the surge in announcements and rumors is starting to raise questions about the viability and urgency of such merger and acquisition projects.

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