Banks

Barclays announced its results for the third quarter of 2020 this morning, with a number of media outlets opting to focus on a 6% year-on-year reduction in top-line income.

Unlike the past six months, where nearly all new deals performed well in the secondary market, from here on in that is far from guaranteed. Expect winners and losers.

The press can have their sensational headlines, but these stories have little substance when it comes to the impact on the reputation risk of banks or indeed any significant impact on their balance sheets come May 2021.

Overall, in our view there may be some temporary volatility ahead which investors can try to sidestep or even take advantage of, but it’s probably not worth trying to be too cute as our medium term outlook is still constructive.

There are a number of countries in Europe where the banking sector remains very fragmented, and while a lot of work has been done in Spain with the mergers of multiple ‘cajas’ in the last few years, there is still scope for further consolidation.

As expected the Monetary Policy Committee (MPC) kept UK base rates at 0.1% and maintained their current level STG IG corporate bond on the BoE balance sheet at £745bn, with no immediate expectations of a need for further stimulus.

Today BBVA announced it would be issuing the first ever green Additional Tier 1 (AT1) bond, a perpetual non-call 5.5-year with initial price thoughts at 6.5%, and immediately sparked a spirited debate among the TwentyFour team over how green bank capital can be.

Like many market participants we are looking ahead to a much anticipated Q2 reporting season, which is even more pertinent this year given the unprecedented environment we have all found ourselves in. We are particularly interested in reviewing the major banks given they are at the centre of the transmission mechanism and hence a barometer for the wider economy.

On what was a very busy morning for new issues, AIB probably came with one of the most interesting, announcing a €500m Additional Tier 1 (AT1) deal with a 5.5-year maturity with initial price thoughts of 7%, though we expect this will be tightened as the order book builds.

A few weeks ago Bank of America Merrill Lynch’s CEO, Brian Moynihan, said that loan losses were not coming through as thick or as fast as he would normally expect for a recession, in particular a recession of this magnitude.

Thursday saw the reopening of the bond market for bank Additional Tier 1 (AT1) debt, more colloquially known as ‘Coco’ bonds.

One of the big support mechanisms for the UK economy during this pandemic has been the availability of grants and corporate loans via the banking system, aided by unlimited liquidity from the central bank.