A €250 million Banco Pastor deal led by Barclays Capital, Dresdner Kleinwort Wasserstein and Morgan Stanley is the first Spanish tier 1 issue targeted at institutional investors. Financial institution originators are rubbing their hands at the prospect of a floodgate of innovative tier 1 issuance. Previously, central bank Banco de España had only allowed non-innovative deals.
Almost all other European regulators have allowed the sale of tier 1 instruments but restricted these to 15% of core tier 1, which is normally common equity and preference shares. But almost all banks have filled their 15% buckets, so the only opportunities for transactions is when old deals are called. "It's great when a market opens up like this," says David Soanes, head of debt capital markets at UBS.
The opening comes at an opportune time for the Spanish banks, which for years have used their retail networks for tier 1 issuance. However, Spanish regulator CMNV, recognizing that banks' deposit holders needed some protection, has recently imposed restrictions on this activity. What prompted the change? Some believe that Santander's purchase of Abbey was the main factor. With more than £1.5 billion-worth ($2.6 billion) of tier 1 instruments in innovative form it would have been disastrous for Santander's tier 1 ratios if the regulator had not changed its stance.