By Ben Edwards
Italian lender Banco Popolare SC (BP.MI) and UniCredit Bank
Austria shelved plans to sell bonds late Monday after failing to
attract sufficient demand amid a weaker backdrop for riskier
debt.
Banco Popolare was seeking to sell a 500 million euro ($649.1
million), 3.5-year bond--its first senior unsecured debt sale since
March 2011. The bank, which is rated one notch above junk by
Moody's and Standard & Poor's, was offering to pay investors
around 390 basis points over the reference midswap rate, 60 basis
points less than similarly rated peer Banca Monte dei Paschi di
Siena (BMPS.MI) sold two-year paper for only last month.
In contrast, Italian flagship bank Intesa Sanpaolo SpA (ISP.MI)
Monday offered investors 315 basis points over midswaps for a
seven-year deal, attracting almost EUR5 billion of demand.
"The market has opened up for more Italian and Spanish banks,
but there remains a clear preference for the top-tier names in
these countries," said Michael Symonds, a credit analyst at Daiwa
Capital Markets.
Given that Banco Popolare sits on the cusp of investment grade,
the lack of demand was more of an issue with the name and the
challenges the bank faces as a second-tier Italian bank as opposed
to the cost of the bond, Mr. Symonds added.
UniCredit Bank Austria, a subsidiary of Italian lender
UniCredit, was seeking to sell its debut senior unsecured bond
Monday, offering investors about 150 basis points over midswaps for
a five-year deal.
That is 240 basis points less than UniCredit Italy paid for
three-year money last month, although that price disparity is
partly because the Austrian division is rated two notches above the
Italian parent at A3 and A by Moody's and S&P,
respectively.
But even a superior credit rating may not have been enough to
reassure some investors given the link to its Italian parent and
the ongoing uncertainty for issuers domiciled in the euro-zone's
fiscally frail regions.
"[The bank] remains an operating entity of UniCredit Group, and
as such is not totally immune to developments in southern Europe,
so investors may have felt that at 150 basis points over swaps,
they weren't being adequately compensated for that risk," said
Brian Barry, fixed-income analyst at Investec.
Monday's weaker market backdrop may also have been a factor in
deterring investors, analysts say, with the cost of insuring
European bank debt against default rising.
The iTraxx Europe Senior Financials index, which comprises 25
high-grade banks and insurers, ended the day five basis points
wider at 183 basis points, according to data provider Markit.
"We are still some way from a return to normal market conditions
so it's not altogether surprising to see some deals run into
trouble, particularly against the backdrop of a weaker day for risk
assets," Mr. Barry said.
Write to Ben Edwards at ben.edwards@dowjones.com