Commerzbank, ABN Amro Wake Up Riskiest Bank-Bond Market

(Bloomberg) -- Commerzbank AG and ABN Amro Bank NV both got big order books for euro Additional Tier 1 notes as investors rushed to the high-coupon bonds following a recent dearth of deals.

ABN Amro’s 1 billion-euro ($1.1 billion) sale was more than 10 times subscribed pre-reconciliation, while Commerzbank got more than 9.5 billion euros of offers for a 1.25 billion-euro note. The two lenders are set to price the bonds, which are first callable in 2025, according to people familiar with the offerings, who asked not to be identified because they’re not authorized to speak about them

The high demand allowed both banks to slash pricing at least 87.5 basis points during the sales process as they roused a market that was heading for its slowest sales quarter in seven years. Investors flocked to the offerings as central-bank support, government stimulus measures and easing coronavirus lockdowns are boosting risk appetite.

ABN Amro tightened pricing on its note to 4.375%. The Commerzbank bond came into 6.125%. AT1s, also known as CoCos, are the first bank bonds to take losses in a crisis.

READ MORE: European Bank Tier 2 Bond Sales Far Outstrip Moribund AT1 Sector

Rising risk appetite has helped cut marketwide yields on all-currency AT1s to 5.7% from almost 15% during the height of March’s coronavirus credit sell-off, based on a Bloomberg Barclays index. Issuance may also get a boost from lenders taking advantage of regulatory relief that allows them to make greater use of AT1s to bolster capital buffers.

Commerzbank unveiled a 3 billion-euro AT1 issuance program last month. The bank sold its first AT1, in dollars, last year. Banco Bilbao Vizcaya Argentaria SA and Cooperatieve Rabobank UA have both recently said they may sell AT1s this year.

Prior to Monday’s two offerings, Bank of Ireland Group Plc was the only European lender to issue an AT1 since the March rout. Banks has instead stepped up sales of less risky, and cheaper, Tier 2 notes.

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