Banks are THE biggest issuers of international bonds, accounting for 60% of new issues captured by Dealogic in the past five years, far outstripping corporates (23%) and sovereigns and supranationals (10%). And for much of the first half of 2002, as credit markets were rocked by a series of corporate misdeeds, banks, along with agencies and supranationals, benefited from a flight to quality. Recently, though, it's been their turn to suffer in unfavourable markets.
In the spring of 2002 Crédit Lyonnais, Bradford & Bingley and Royal Bank of Scotland managed to issue at very attractive levels. Eamonn Price, head of UK institutions in debt capital markets at Lehman Brothers, says: "In the second quarter, we were in a raging bull market for bank capital, and a number of deals were done near issuers' historical tights. Issuers that came to market in this period are very pleased, and many achieved levels they probably won't see again for some time." Buyers aren't so happy.
As the second half wore on and equity markets deteriorated, many banks began posting disappointing results. Spreads for some bank issuers ballooned. This reflects more than short-term concern about rising bad debt levels.