Euro banks restart subordinated bond market

(18 Mar) Reuters LONDON – Lloyds and Nordea reopened the European subordinated bank bond market after a four-month hiatus and investors showed a voracious appetite for the high yielding bonds.

The differences between the two institutions showed up dramatically in the price they paid however with Lloyds offering 6.5 per cent against 4.5 per cent for Nordea – an historically very wide 200 basis point premium said bankers.

Bank issuance of subordinated bonds known as Lower Tier 2 has been limited since the financial crisis began depressing demand and prices for the securities which have some loss-absorbing qualities in the event of a default.

Lloyds 41 per cent-owned by the UK government offered 325 basis points over mid-swaps on a 10-year €1.5 billion Lower Tier 2 bond which attracted orders of more than €5.7 billion.

In contrast Nordea the Nordic region's largest bank paid a 123 basis points over mid-swaps on its €1 billion 10-year deal.

The reasons behind the two deals were also different. Nordea's was largely a refinancing operation of an existing subordinated bond while Lloyds was pulling in long-term cash.

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