Societe Generale SA is selling a new additional tier 1 bond on Tuesday after recent redemptions of older bonds depleted this crucial layer of capital.
The French lender is offering a dollar-denominated perpetual bond expected to amount to at least $500 million, with initial price discussions in the 10.5% area, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. That corresponds to 590 basis points above US treasury yields, based on Bloomberg calculations. The pricing for the deal callable in May 2029 could change during the sale process.
Representatives at Societe Generale didn’t have an immediate comment.
The offering comes shortly after the bank announced the repayment of a $1.75 billion note, the last of its contingent convertible debt with a call date in 2023. It also redeemed a $1.25 billion bond in August. The bank also has two AT1 bonds, amounting to about $1 billion, reaching first call dates next year, based on data compiled by Bloomberg.
What Bloomberg Intelligence Says...
“Societe Generale’s proposed dollar PerpNC5.5 Additional Tier 1 bond, which comes with initial price talk of 10.5%, follows the call of the 7.875% AT1 bond last week ($1.75 billion issue) and will help to bolster the bank’s Tier 1 ratio. This call would have cut the bank’s Tier 1 ratio by about 40 bps to 15.5% (all else equal), below the sector’s 16.5% average (2Q) ”
— Jeroen Julius, Senior Credit Analyst
AT1 bonds help banks comply with core capital requirements without relying solely on more expensive equity. They were created after the financial crisis as a way to impose losses on creditors when a bank is in trouble, instead of using taxpayer money. The notes pay a fixed rate until their first call, and then switch to a floating rate comprising a market benchmark and a spread. For investors, they carry the most risk among bank debt, but are popular because of their high yields.
Societe Generale sale comes during a busy few days for deals in Europe after several weeks of volatility in the government bond market put off issuers. Risk appetite has returned amid optimism that central banks are mostly done with interest-rate hikes and increased bets that rate cuts could be on the way next year.
The deal is the first time a European lender has raised AT1 debt in a major currency since Spain’s Banco Bilbao Vizcaya Argentaria SA issued a $1 billion bond at 9.375% almost two months ago. That sale saw high demand, with orders more than three times the offer size. In October, Mitsubishi UFJ Financial Group Inc sold the first dollar-denominated AT1 by a Japanese bank at 8.2%, also seeing very high investor demand, according to a person familiar with the matter.
The sales indicate that the market for AT1 debt has long recovered from the historic $17 billion writedown of Credit Suisse securities in March. BNP Paribas SA reopened the market for dollar AT1s in August, before the jump in rates volatility inflicted another blow.
Last week, Societe Generale reported a drop in profit for the third quarter as wrong-way hedges on interest rates weighed on lending income.