Banks Tap Senior Bond Market As ECB Liquidity Boosts Appetite

European banks sold almost the same volume of senior-unsecured bonds this week as during the entire second-half of 2012, although this isn't likely to be a template for the months ahead.

Rabobank Nederland (RBK.YY), Nordea Bank AB (NDA.SK), ABN Amro (ABN.YY) and Skandinaviska Enskilda Banken AB (SEB-A.SK) tapped the senior-unsecured market this week for EUR10 billion of senior-unsecured bonds, according to Societe Generale.

The bumper crop compared to EUR12 billion issued from July to December, when borrowings costs became prohibitively high for even the region's biggest banks.

"These deals are a positive message for the markets, against what was a very dark backdrop last year," said Tim Skeet, a managing director at the Royal Bank of Scotland PLC.

However, all four deals came out of countries perceived to be furthest removed from the region's sovereign and bank debt crisis.

"It's a good sign, but let's not get carried away," a financials syndicate banker said. "We're still where we were at the end of last year in terms of access... and there's a lot of work to be done to heal the market."

Still, the rush may encourage further issuance. Banks, currently awash with cash, was one reason the volumes climbed. As the debt crisis continues to roil banks' confidence in each other to pay back loans, those with cash are hoarding it, while the ECB has stepped up its support.

Another record use Thursday of the ECB's short-term deposit facility showed banks remain cash rich. In December, the ECB lent about EUR500 billion in three-year loans in the first of two long-term liquidity operations.

"It's fair to assume the operation had a direct effect on demand," the syndicate banker said. "Banks have a lot of short-term liquidity that they've been depositing with the ECB, that's just cash, so the number of banks using that to buy floating rate notes has been very, very high."

ABN Amro, Nordea Bank and Rabobank all sold FRNs, accounting for half of this week's unsecured deals.

Instead of senior-unsecured debt, banks increasingly have turned to selling covered bonds, perceived to be among the safest debt banks sell.

This week, European banks raised more than EUR10 billion from covered bonds, though this comes as little surprise.

"The first week in January is always the busiest week in the covered bond market," said Richard Kemmish, head of covered bond origination at Credit Suisse. "What is interesting this year is that there's a lot more investors involved, there's a more diverse number of issuers and the average maturities are longer."

-By Ben Edwards and Art Patnaude, Dow Jones Newswires; 44-20-7842-9287; ben.edwards@dowjones.com

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