Nomura Sees More Europe Banks Boosting Defenses With Samurai (1)

(Bloomberg) -- HSBC Holdings Plc boosted regulatory buffers to prepare for the next financial crisis with the biggest Samurai bond sale in more than seven years this month and leading Japan’s largest securities companies to say yield-hungry investors back home aren’t yet sated.

The London-based bank joined Standard Chartered Plc this month in selling yen bonds compliant with total loss-absorbing capacity, or TLAC rules, in a Samurai market where issuance is running at its lowest in four years. Its 181.8 billion yen ($1.8 billion) issue included 10-year notes with a 1.207 percent coupon, compared with negative sovereign yields and average interest of 0.21 percent on corporate notes, according to Bank of America Merrill Lynch data.

“Wherever you look, banks need to issue TLAC-compliant senior bonds,” said Fumio Taki, a credit analyst in Tokyo at Daiwa Securities Group Inc., last year’s No. 2 Samurai underwriter. “TLAC senior bonds pay higher premiums, and are pretty attractive.”

Nomura Holdings Inc., the top arranger in 2015, said a lot of European banks are considering selling TLAC bonds to yen investors to diversify sources of funding outside dollar and euro debt markets. British banks have so far led sales of notes that will form part of a firewall aimed at preventing the need for any possible taxpayer bailout. Daiwa said French banks will probably follow with the adoption of new legislation to facilitate similar deals.

“A lot of European financials think that the yen market can offer value for them as it’s a market where they can sell these instruments to an investor base that understands them,” said David Hague, the head of debt capital markets for U.K. financial institutions at Nomura in London. The fact that there has been very little supply in the Samurai market this year and HSBC’s sale of three different bond maturities helped attract a wider base of investors and support the deal’s size, he said.

HSBC sold the yen notes “in order to obtain diversification in our portfolio across currencies and markets,” Gillian James, a spokeswoman for the bank, said by e-mail. “We pace our issuance consistent with market conditions.”

European Union nations including Germany, Italy and France have started legislation to make sure senior bonds can be included in new rules designed to protect taxpayers from the cost of financial institution failures. France is in the final stages of considering legislation that would allow its banks to issue a new form of senior unsecured debt that may used to wind down and recapitalize giant lenders.

For a story on competition among Samurai underwriters, click here.

French issuers have been by far the single biggest group of Samurai bond sellers since 2013, accounting for 30 percent of 7.26 trillion yen in offerings since then. The two largest borrowers during that period were France’s BPCE SA and Credit Agricole SA, which combined sold over 1 trillion yen in the notes. The nation’s biggest banks, BNP Paribas SA, Societe Generale SA, BPCE, and Credit Agricole, have the potential to issue up to 93 billion euros ($105 billion) of the new debt, ABN AMRO Group NV said in a report last month.

“If banks have a lot of other subordinated capital or securities that rank even lower than senior TLAC bonds, there is nothing to fear,” said Daiwa’s Taki. “As long as a bank’s losses don’t extend up to senior TLAC bonds, they’re fine.”

(Updates with HSBC comment in sixth paragraph.)

To contact the reporter on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net. To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Sandy Hendry at shendry@bloomberg.net, Ken McCallum, Tomoko Yamazaki

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