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Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast.

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Speaker 1: My name is James Crumby. I'm a senior editor at Bloomberg.

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Speaker 1: This week, we're very pleased to have back on the

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Speaker 1: show Lisa Lee, who covers all things credit for Bloomberg

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Speaker 1: News in London. How are you, Lisa fine?

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Speaker 2: Thank you, Thank you for having me. It's actually a

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Speaker 2: very warm day in London, very unusual.

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Speaker 1: Great well, very excited to get your take on the markets.

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Speaker 1: Thanks very much for joining us. We're also delighted to

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Speaker 1: see Urun Julius, a credit analys with Bloomberg Intelligence in London.

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Speaker 1: We'll be coming back to Urun a bit later to

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Speaker 1: talk about banks and eighty one's and the aftermath of

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Speaker 1: the credit Swiss collapse. So do to stay with us.

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Speaker 1: But first, Lisa Lee with Bloomberg News, you're our global

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Speaker 1: guru on clos, which we've talked about quite a lot

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Speaker 1: on this show. But let's start with it an easy one.

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Speaker 1: What is a clo, how do they work?

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Speaker 2: And why do we care so colos buy up lavish loans?

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Speaker 2: What are leverage loans? First of all, you ask, those

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Speaker 2: are debt loans of junk rated companies. So those on

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Speaker 2: the edge of bankruptcy, but nonetheless still can produce very

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Speaker 2: good yield and usually back pees buyouts and companies like

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Speaker 2: as wide ranging as American Airlines to Burger Kings and

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Speaker 2: colos are the biggest buyers, and they buy them to

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Speaker 2: turn them into bonds that they sell on to other investors.

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Speaker 1: Okay, so issuance of clos hasn't been that active this year,

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Speaker 1: but we have been kind of hearing about a revival

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Speaker 1: potentially this month. Has that started yet? Are you seeing

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Speaker 1: a big boom in COLO issues right now?

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Speaker 2: I think what we're seeing is a lot of boom

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Speaker 2: on COLO aspirations. So there's a lot of managers who

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Speaker 2: are hoping to dos because as you said, there's issuance

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Speaker 2: has been very weak. You look now we're in September.

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Speaker 2: You've got really three and a half months to get

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Speaker 2: deals done, and so people are hoping maybe we can

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Speaker 2: get one deal done, two deals down before the end

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Speaker 2: of the year and make something of this year. So

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Speaker 2: it's not a total, sort of a really bad week year.

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Speaker 2: The problem is everyone has the same thought. Everyone wants

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Speaker 2: to do a deal right now, and the problem that's

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Speaker 2: been riddling them all year long has now gone away,

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Speaker 2: which is that they're just not as enough leverage loans

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Speaker 2: to turn into bonds. And what is that has done

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Speaker 2: is push leverage loan prices higher, too high for them

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Speaker 2: to do a deal that pleases every investors in their

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Speaker 2: capital stack. And as a COLO, you have to please

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Speaker 2: every investor or, you're not going to really have a popular, economic,

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Speaker 2: robust COLO.

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Speaker 1: Interesting And at the same time, we're seeing a lot

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Speaker 1: more hedge funds getting into clos. Who's jumping in and

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Speaker 1: why are they getting in now?

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Speaker 2: So hedge funds are getting in because you know, one

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Speaker 2: thing you've noticed is hedge funds it's a great business.

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Speaker 2: It can make so much money. It's two and twenty

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Speaker 2: and so there's a lot of volatility in hedge funds.

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Speaker 2: You make tons of money, but you can also lose

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Speaker 2: a lot of money colos as a manager. As a

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Speaker 2: manager of colos, which is versus an investor who buys

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Speaker 2: the bond, but one who buys the loans, packages them

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Speaker 2: up and then sells them. It's a very steady fee business.

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Speaker 2: And if you're a hedge fund already that has a

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Speaker 2: lot of credit focus. For instance, Arini is a hedge

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Speaker 2: fund by this very famous former credit Swiss corporate trader.

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Speaker 2: He knows corporate debt and so that's his hedge fund.

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Speaker 2: And so to move into COLO is a very easy

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Speaker 2: ancillary business and it provides a steadiness that perhaps, I mean,

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Speaker 2: hedge funds don't have. And and I think why now,

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Speaker 2: there's always people are always thinking like there's always a

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Speaker 2: good time for steady business, and you're thinking about this

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Speaker 2: for a long term platform, not just for this moment.

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Speaker 2: And so we're seeing a bunch of them, not just Areni,

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Speaker 2: but surround Carvel. A number of hedge funds are trying

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Speaker 2: to get in. And remember remember there's already a number

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Speaker 2: of hedge funds who have COLO platforms, like King Street

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Speaker 2: and Anchorage.

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Speaker 1: Sorry, that fund you mentioned is Irene Arenis.

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Speaker 2: He is an Arene's the word for parrot, and he's

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Speaker 2: a big fan of parrots.

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Speaker 1: Great, okay. And so these hedge funds that are coming

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Speaker 1: in new to the asset class, are they doing big

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Speaker 1: deals or just kind of testing the waters right now?

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Speaker 2: I think what they're going to do is to just

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Speaker 2: get their first deal done. Usually, if you want to

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Speaker 2: start a COLO business, regardless of whether you're a hedge

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Speaker 2: fund or an asset manager. You have to hire a

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Speaker 2: very well known, well regarded COLO manager that's experienced for

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Speaker 2: the market to trust you. So they've all done that.

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Speaker 2: They've all hired a COLO manager, and now they're meeting

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Speaker 2: many of them are meeting with investors, trying to pitch

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Speaker 2: how they are different and trying to see if they

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Speaker 2: will be interested in their deals.

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Speaker 1: I've got to ask, and I know we've talked about

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Speaker 1: this before, but hedge fronts clos I mean, it all

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Speaker 1: sounds like a risky business to me. Why should we

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Speaker 1: not worry about this?

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Speaker 2: Well, I don't think we should not worry about this.

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Speaker 2: I mean there are systemic risks involved with these kind

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Speaker 2: of of securitized products, and the Bank of England and

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Speaker 2: the Treasury and the IMF have warned that corporate dead

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Speaker 2: could be an area of systemic risks, so we should worry.

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Speaker 2: At the moment, we're seeing fairly low default rates. But

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Speaker 2: one area of real concern is low. Default rates are

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Speaker 2: fairly low, but we don't know whether they will stay

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Speaker 2: that way. And the defaults are of the leverage loans

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Speaker 2: that they repackage. And what one thing that I've been

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Speaker 2: reporting on is how low recovery levels are so defaults

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Speaker 2: are like when a company goes perhaps goes bankrupt. Recovery

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Speaker 2: is how much money investors lenders get back when something

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Speaker 2: goes back. So it's so for a investor, it's not

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Speaker 2: just default rate bankruptcy numbers, it's also times that with

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Speaker 2: how much money they get back, and the recovery levers

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Speaker 2: have been astonishingly low, historically low. So usually colos got

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Speaker 2: seventy eighty cents back after a company went bankrupt. Now

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Speaker 2: they're looking at more like twenty five cents, So that

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Speaker 2: is really changing how they have to think about their

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Speaker 2: investment at the moment. I don't think they're pricing this in,

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Speaker 2: but people are getting more and more concerned. So one

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Speaker 2: thing you've seen in Europe is some brigade capital management retool.

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Speaker 2: There exists two of their existing colos so they can

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Speaker 2: better fight off what some people have been calling lender

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Speaker 2: on lender of violence or credit or on credit of violence,

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Speaker 2: where maybe a aggressive hedge fund comes in, puts in

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Speaker 2: new money and pushes other investors other lenders down the

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Speaker 2: priority line. And because of this kind of maneuver, some

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Speaker 2: bankruptcies have produced zero for for first lean lenders.

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Speaker 1: So you raise a lot of issues at least, I mean,

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Speaker 1: I've got to start trying to unpack some of them.

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Speaker 1: But you're talking about hedge funds getting into clos At

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Speaker 1: the same time, some of the risky maneuvers that they're

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Speaker 1: they're doing are what we have called creditor on credited

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Speaker 1: violence some clos in response to trying to rework their

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Speaker 1: their rules to make it tougher to to pull those

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Speaker 1: things off. It all just sounds like a total, total mess.

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Speaker 1: I mean, and then and then at the same time,

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Speaker 1: because of these aggressive strategies, the recoveries when you go

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Speaker 1: through a default are much lower for for investors. I mean,

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Speaker 1: what's the takeaway here? I mean, it's this market just

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Speaker 1: becoming a total scrap. And I mean, is it is

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Speaker 1: it getting more risky as a result?

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Speaker 2: Oh, I want to say it's having a total scrap.

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Speaker 2: I think there's a lot of things to worry about

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Speaker 2: and things to watch for. As of as of now,

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Speaker 2: the faults are still low. As of now, recoveries are low,

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Speaker 2: but they could go higher as of now. But it

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Speaker 2: also sort of depends on the broader economy if how

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Speaker 2: interest rates go where if we have a recession or

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Speaker 2: not if interest rate, if inflation picks up again, or

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Speaker 2: if the FED doesn't manage a soft landing and we

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Speaker 2: go into a recession, then I think that this becomes

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Speaker 2: more and more of a worry because hedge funds, not

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Speaker 2: the ones, even the ones we have have COLO shops,

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Speaker 2: have raised a lot of money for distressed situations, and

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Speaker 2: they have pools of capital ready to put to do

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Speaker 2: these aggressive tactics, and they could really leave the COLO

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Speaker 2: and levision role market in a lot of damage.

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Speaker 1: But let's get back to where you started with the

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Speaker 1: hedge funds getting in and they're getting into this business

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Speaker 1: because it is a stable fee generating business. At the

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Speaker 1: same time we're saying that it's it's under a lot

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Speaker 1: of pressure and there is getting more volatile. I mean,

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Speaker 1: how do we square that circle?

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Speaker 2: Because the manager is not up for the law. So

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Speaker 2: remember I told you the manager sells the bonds. The

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Speaker 2: people who get hurt are the bonds, the people who

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Speaker 2: bought the bonds, not the managers who sold the bonds.

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Speaker 2: So getting into the steady fee business, you've hopefully, hopefully

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Speaker 2: put off the risk to somebody else. Now, the problem

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Speaker 2: oftentimes with any kind of financial crisis that you think

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Speaker 2: you've sold off the risk, you haven't. But in this situation,

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Speaker 2: it really does seem like they've sold off the risk.

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Speaker 2: But it doesn't mean that that risk goes somewhere. It's

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Speaker 2: never it never disappears. I think that's the kernel of

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Speaker 2: truth and finances. You can move away risk, but you

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Speaker 2: can't make risk disappear. So it's just in other people's

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Speaker 2: pockets that this problem exists, and.

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Speaker 1: It may take a while for that problem to show up. Yes, okay,

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Speaker 1: so let's just go back to the rule changes that

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Speaker 1: we're talking about in some of these clos to try

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Speaker 1: and fend off these attacks by aggressive hedge funds. Will

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Speaker 1: these amendments become an industry standard?

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Speaker 2: Do we think in the US they become. They're more

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Speaker 2: standard than in Europe. But I've talked to managers and

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Speaker 2: lawyers and they definitely think that this will pick up,

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Speaker 2: that there is great interest in doing them. Doesn't take

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Speaker 2: that much effort. They've like sort of innovated them to

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Speaker 2: the point that it doesn't cost too much to do

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Speaker 2: and there's only benefit to have it, and there isn't

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Speaker 2: much of a downside to not having them. So I

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Speaker 2: do think it's going to become more of an industry norm.

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Speaker 2: But we'll see sometimes people can get really complacent.

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Speaker 1: And so let's just go back to the original point

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Speaker 1: about clos. You know that they are basically repackaging loans

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Speaker 1: to pretty you know, stable, you know, large companies that

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Speaker 1: are household names. Does that make them more or less risky?

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Speaker 1: And what's their performance being over time? I mean, is

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Speaker 1: this something like the CDOs that are really very dangerous

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Speaker 1: or has it been a long term performer?

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Speaker 2: First, for the longest time, clos were one of the

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Speaker 2: areas in the securitization market that performed fairly well during

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Speaker 2: the financial crisis, which is the reason why they came

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Speaker 2: back post crisis. So CE deals never came back. CBOs

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Speaker 2: never came back in the way they were. So they

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Speaker 2: did come back, they did perform well. But past is

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Speaker 2: not pro blogs to the future, and the markets changed

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Speaker 2: a great deal, so it's not to say that that

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Speaker 2: can't cause issues in the future. But history has shown

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Speaker 2: them to be pretty sturdy, and they've worked to become

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Speaker 2: more sturdy. But it's hard to know given all the

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Speaker 2: changed market and the way hedge funds behave now and

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Speaker 2: how restructures are going a lot of it will depend

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Speaker 2: on how bad a recession there is and how bad

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Speaker 2: and how high inflation is and how high interest rates are.

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Speaker 1: So on that point, and before we talk to your

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Speaker 1: own Julius Bloomberg intelligence about the banks, what else is

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Speaker 1: on your radar? I mean, as you say, the economy

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Speaker 1: in Europe particularly doesn't look great. Should we be worried

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Speaker 1: about risk assets here? You've also been writing a lot

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Speaker 1: about private credit. Is you know, bigger and bigger deals,

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Speaker 1: more and more fundraising. Is it all rosy over there

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Speaker 1: as well?

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Speaker 2: No, I think there's Well, it depends on who you're

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Speaker 2: talking to. The private credit mandre just having a great

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Speaker 2: time raising money. And since we started with clos, they're

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Speaker 2: looking a little worried because private credit is taking away

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Speaker 2: a lot of the loans that they used to repackage.

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Speaker 2: So they're worried there. And a big topic right now

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Speaker 2: is private credit clos So should we more move more

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Speaker 2: to private credit clos? Should we securitize this? Private credit

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Speaker 2: in the US is already happening, and it's picking up

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Speaker 2: and it's booming. It's actually the one area of the

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Speaker 2: clo market that's booming and Europeans managers were wondering whether

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Speaker 2: they can get into the action as well. So in

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Speaker 2: one so there's they're worries about how much private credit

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Speaker 2: is taking away from the leveraged loanwark gets as high

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Speaker 2: yield and lavish loan and private credit sort of converges,

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Speaker 2: and the same time people are all thinking about, okay,

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Speaker 2: well then what's the opportunity next, Well, how can I

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Speaker 2: still make money?

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Speaker 1: So we really will be working very close at your

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Speaker 1: coverage to kind of figure out what's going on, why

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Speaker 1: it's happening, and what are the risks. It's a really

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Speaker 1: fascinating one to watch. Great stuff. Lisa Lee from Bloomberg News,

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Speaker 1: thank you so much for joining us.

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Speaker 2: Thank you for having me. It's been a pleasure.

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Speaker 1: As always, read all of Lisa's scoops on the Bloomberg

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Speaker 1: terminal and of course at Bloomberg dot com. Moving on

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Speaker 1: to another big topic. As I mentioned earlier, we are

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Speaker 1: very fortunate to have with us Urun Julius, who covers

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Speaker 1: credit for Bloomberg Intelligence based in London, and it's focused

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Speaker 1: on the banks. How's it going over there?

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Speaker 2: Urun?

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Speaker 3: All good? Thank you very much, s James, and thank

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Speaker 3: you for having me on the podcast.

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Speaker 1: Thanks for joining us. And last time we spoke, Credit Suisse,

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Speaker 1: which was deemed at the time to be a global

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Speaker 1: systemically important bank, collapsed. That was in March. How has

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Speaker 1: that impacted the European banking sector? What was the fallout there?

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Speaker 3: Well, I think it may have done some permanent damage

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Speaker 3: to Switzerland's reputation of calmness and predictability, But the impact

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Speaker 3: on the wider European banking market and more specifically on

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Speaker 3: the eighty one market, I think is more nuanced. I

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Speaker 3: think most eighty one investors have concluded that there is

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Speaker 3: no readacross between Switzerland and some of the other jurisdictions

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Speaker 3: EU and UK regulates that came out quite strongly in

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Speaker 3: back in March in support of respecting the claims hierarchy

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Speaker 3: in case of a bank failure, and I think most

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Speaker 3: eighty one investors have also concluded that there's no reta

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Speaker 3: cross between credits Feeze and other European banks. If you

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Speaker 3: look at the banks credit fundamentals, you know these have

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Speaker 3: quite quite resilient and judging from their second quarter results.

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Speaker 1: Okay, so let me start you there. You mentioned eighty

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Speaker 1: one's which stands for additional tier one. It's a type

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Speaker 1: of risky bank debt. But before we get into the

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Speaker 1: sort of details of what's going on there, can I

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Speaker 1: ask you just to please describe what those are, how

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Speaker 1: they work for those that aren't aware.

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Speaker 3: Yes, So these are the most junior type of instruments

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Speaker 3: that banks can issue, mostly in Europe, but also in

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Speaker 3: a lot of other jurisdictions outside of the United States.

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Speaker 3: And they see just above common equity, and they share

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Speaker 3: with common equity a number of characteristics. They are perpetual instruments,

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Speaker 3: so they do not have a fixed maturity date. They

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Speaker 3: do have an issue a call date and if not

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Speaker 3: called subsequent issuer call dates, but no fixed maturity debt.

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Speaker 3: That's the first characteristic. In addition to that, they have

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Speaker 3: discretionary coupon cancelation language, so that means that the issuer

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Speaker 3: can decide to issue a coupon whenever it wants to

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Speaker 3: do so. And then lastly, embedded in the eighty one

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Speaker 3: structure is principal laws mechanism, and that means that if

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Speaker 3: a certain capital trigger is hit that the part value

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Speaker 3: of those instruments will either be written down temporarily or

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Speaker 3: as was the case with the credit suis eighty one's

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Speaker 3: permanently all they are. They are converted into common.

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Speaker 1: Equity, so the eighty one one they're also known as

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Speaker 1: contingent convertibles. They help banks comply with capital requirements as well,

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Speaker 1: and they were created after the financial crisis as a

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Speaker 1: way to imp losses on creditors without using taxpayer money, right,

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Speaker 1: and that's how they kind.

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Speaker 3: Of that's the history, that's right, yes, yeah, yeah, Okay, So.

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Speaker 1: As you mentioned in the credit Swiss collapse that we

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Speaker 1: saw earlier this year, the eighty one bonds were fully

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Speaker 1: written down, which was I think a bit of a

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Speaker 1: shock to some people and canceled by the Swiss authorities.

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Speaker 1: How did this affect the eighty one market? Was their

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Speaker 1: permanent damage?

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Speaker 3: Well, most of the eighty one prizal lines that we

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Speaker 3: saw back in March have now been reversed. Having said that,

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Speaker 3: over the past few months, eighty one's have been more

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Speaker 3: or less range bound at around ten percent yield to

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Speaker 3: worst for Euro and dollar denominated the bonds, so eighty

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Speaker 3: one yields they've they've basically reset to a higher level

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Speaker 3: if you compare it with where we were back in

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Speaker 3: January early February. This is mostly been due to higher

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Speaker 3: rates rather than high spreads trading volumes in eighty one,

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Speaker 3: so they have come down from the highs that we

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Speaker 3: saw back in March. Some of this is probably due

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Speaker 3: to the absence of eighty one issues between March and June.

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Speaker 3: Some of it may also be due to seasonality over

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Speaker 3: the quieter summer months. But it may also be the

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Speaker 3: case that some investors have decided to no longer be

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Speaker 3: involved in the eighty one space given their volatility and

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Speaker 3: the risk of impromptu rule changes by governments as we

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Speaker 3: saw in Switzerland, and that may have heard demand technicals

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Speaker 3: and liquidity, and may also have made eighty one prices

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Speaker 3: potentially more volatile. But if you compare current trading levels

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Speaker 3: with previous years, eighty one trading volumes actually don't look all.

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Speaker 1: That bad, so not really a huge impact then, I mean,

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Speaker 1: the disappearance of this mass of institution credit Swiss. Other

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Speaker 1: than a kind of a slap to the Swiss reputation

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Speaker 1: for for you know, safe hands and you know solid banking,

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Speaker 1: there hasn't really been that much long term impact on

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Speaker 1: on on the market.

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Speaker 3: Well, you know, maybe it's too soon to say, but

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Speaker 3: you know. I started that by saying that the reader

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Speaker 3: cross between Switzerland and other jurisdictions is limited. The readacross

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Speaker 3: between credit Swiss and other European banks is also limited.

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Speaker 3: Valuations have recovered, Trading volumes are down, but not massively so,

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Speaker 3: so you know, by the look of things, things have

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Speaker 3: normalized fairly quickly. But look, a precedent has been said,

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Speaker 3: and I think some investors may have decided that, you know,

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Speaker 3: this is just too wild a right and no longer

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Speaker 3: wanted to be evolved in it.

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Speaker 1: But if you bought some of that stuff during the

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Speaker 1: height of the panic earlier this year, you would have

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Speaker 1: made a lot of money. Are there's still opportunities out there?

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Speaker 1: Are they're still cheap eighty one bonds?

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Speaker 3: There are a few smaller issues, you know, issued by

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Speaker 3: some smaller, more marginal banks that are trading at very

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Speaker 3: wide levels, It's true. And then some of the Swiss

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Speaker 3: Bank eighty one's I was away from ubs are also

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Speaker 3: still trading at fairly wide levels. So I do think

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Speaker 3: that there is a bit of a Swiss discount being

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Speaker 3: applied to some of theirs. But some of those instruments,

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Speaker 3: they are denominated in Swiss francs rather than in euros

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Speaker 3: or dollars. So away from that, yeah, I think the

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Speaker 3: large majority of the of the eighty one space has

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Speaker 3: has has recovered quite quite nicely.

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Speaker 1: Interesting, So let's talk about primary market issuance. You know,

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Speaker 1: new debt sales in the US. The beginning of September,

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Speaker 1: we kicked off with the busiest day in three years

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Speaker 1: for primary high grade bond issuance. I mean that obviously

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Speaker 1: includes debt of all types. But has the eighty one

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Speaker 1: market also rebounded.

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Speaker 3: Yeah, So the primary market in eighty one's was shot

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Speaker 3: between March and to June. That has now reopened. We've

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Speaker 3: seen i think seven banks issue mostly in euros, and

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Speaker 3: all the newly issued eighty ones they are trading around

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Speaker 3: bar or a little above it. So perhaps that could

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Speaker 3: also be taken as an indication that the dust has settled,

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Speaker 3: that you know, invested nerves have steadied, and eighty one

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Speaker 3: issuers have also become a bit more confident.

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Speaker 1: So let's talk about the calls your own the market has.

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Speaker 1: According to Bloomberg News, there's about eighty four billion in

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Speaker 1: notes that have calls over the next two years. Typically

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Speaker 1: banks would call that debt and replace it with new debt,

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Speaker 1: so that's you know, an issuance driver. But you've also

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Speaker 1: noted non call risk. Can you talk a bit about

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Speaker 1: the call and the non call risk and how that works.

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Speaker 3: Yeah, So, until recently, there's always been expectation in Europe

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Speaker 3: that eighty one bombs would get called at the first

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Speaker 3: call date. Back in twenty twenty we saw the first

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Speaker 3: cases of bombs North getting called a first call date

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Speaker 3: something there was the first one but then decided to

384
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Speaker 3: call later on, and then you had Deutsche Bank and Lloyd's.

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Speaker 3: Since then, there have been a few others. In the

386
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Speaker 3: fourth quarter of last year you had Rifis and Sabadel,

387
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Speaker 3: but then Sabadel did a call later on, so there's

388
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Speaker 3: been a few cases, had forth cases Going into this year,

389
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Speaker 3: non core risks gone up because of the economics they've changed,

390
00:23:04,200 --> 00:23:09,080
Speaker 3: you know, back end coopon reset indices, they have moved

391
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Speaker 3: higher in line with higher rates, and as a result

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Speaker 3: of that, you now have to be a bit more

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Speaker 3: careful about this risk. You can no longer assume that

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Speaker 3: every single eighty one bond will get called. The first

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Speaker 3: thing you have to look at is the starting capital

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Speaker 3: position of an issuer. If a bank is well capitalized,

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Speaker 3: you know, then they have got discretion to do as

398
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Speaker 3: they please. If that is not the case, then a

399
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Speaker 3: bank will need to issue a replacement bond, and if

400
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Speaker 3: it does so, then you have to look at the

401
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Speaker 3: core economics. So, in other words, the replacement bond at

402
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Speaker 3: what level was it issued? Was it at the same level,

403
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Speaker 3: cheaper or more expensive? If the new bond was issued

404
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Speaker 3: at a more expensive level, then there is a risk

405
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Speaker 3: that the regulator will say, well, listen, you are you

406
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Speaker 3: should not call the bond coming up for call. So

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Speaker 3: the ECB has been a bit ambivalent on this topic.

408
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Speaker 3: They have allowed some non economic calls. But very recently

409
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Speaker 3: we saw something there not calling. It's five and a

410
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Speaker 3: quarter euro bones. That bond has its coming up for

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Speaker 3: call actually at the end of this month, at the

412
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Speaker 3: end of September, but the call notice period has now expired,

413
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Speaker 3: and that in effect means that it will not get called.

414
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Speaker 3: Something that had not issued replacement bond, and you know,

415
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Speaker 3: because of its capital position, it meant that it was

416
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Speaker 3: not going to call. Was widely expected, so that it

417
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Speaker 3: wasn't a huge surprise, but it does on the score

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Speaker 3: the fact that this is this is a risk that

419
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Speaker 3: investors need to consider carefully.

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Speaker 1: And even more uncertainty, which is maybe contribute fivoriting to

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Speaker 1: the volatility and the liquidity issues that you mentioned earlier.

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Speaker 1: That's right, yes, So let's look ahead, you run to

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Speaker 1: the rest of the year and maybe into next year.

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Speaker 1: What's next for the eighty one sector? What have you

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Speaker 1: got your eye on?

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Speaker 3: So there's only one bond left for call this year,

427
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Speaker 3: that's the Social Station General dollar seven and seven eighths

428
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Speaker 3: callable in December. This particular bond will likely get called

429
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Speaker 3: as it contains some legacy language. The bond was issued

430
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Speaker 3: on the UK law, which is a bit of an

431
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Speaker 3: issue after Brexit. Looking into next year, there will be

432
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Speaker 3: thirty three eighty one's coming up a first call across

433
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Speaker 3: euro dollar and Sterling for an equivalent or thirty three

434
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Speaker 3: billion dollars, and that is that's an increase on previous years.

435
00:25:58,119 --> 00:26:01,239
Speaker 3: So you know, next year is shaping up to be

436
00:26:01,520 --> 00:26:06,280
Speaker 3: quite quite a big big year for calls and probably

437
00:26:06,280 --> 00:26:09,120
Speaker 3: also for issuance, and the year beyond twenty twenty five

438
00:26:09,160 --> 00:26:13,960
Speaker 3: is even larger. Now, over the past week, we've seen

439
00:26:14,000 --> 00:26:17,239
Speaker 3: two banks doing a tender offer for one of their

440
00:26:17,440 --> 00:26:20,160
Speaker 3: existing eighty ones with the first call date next year

441
00:26:20,800 --> 00:26:24,879
Speaker 3: and simultaneously issue a new eighty one with a tender

442
00:26:24,920 --> 00:26:29,520
Speaker 3: offer being contingent on the successful issue of the new bond.

443
00:26:30,640 --> 00:26:33,480
Speaker 3: By the way, the two banks are in Tessa in

444
00:26:33,520 --> 00:26:38,520
Speaker 3: Italy and as the Group Bank in Austria. So that's

445
00:26:38,720 --> 00:26:41,920
Speaker 3: that's a new way of replacing existing eighty one bonds

446
00:26:41,960 --> 00:26:45,120
Speaker 3: coming up for call, which seems to be more efficient

447
00:26:45,359 --> 00:26:50,720
Speaker 3: and so we think may well be adopted more broadly and.

448
00:26:50,880 --> 00:26:53,680
Speaker 1: More broadly in the sector your own. What else should

449
00:26:53,680 --> 00:26:56,640
Speaker 1: we be looking for in European financials? You know, when

450
00:26:56,800 --> 00:26:59,479
Speaker 1: when there was that big crisis with credits with some

451
00:26:59,520 --> 00:27:01,480
Speaker 1: of the other band for kind of wobbling, Deutsche Bank

452
00:27:01,640 --> 00:27:04,200
Speaker 1: was under a lot of stress. Are the other banks

453
00:27:04,240 --> 00:27:06,240
Speaker 1: that we should be worried about? Are we expecting another

454
00:27:06,640 --> 00:27:08,119
Speaker 1: replay of credits Swiss?

455
00:27:08,880 --> 00:27:15,359
Speaker 3: Well, you can never exclude that sort of stress scenario

456
00:27:15,359 --> 00:27:18,400
Speaker 3: playing out. But what we do is every quarter we

457
00:27:18,400 --> 00:27:22,560
Speaker 3: we have a close look at the at the balance

458
00:27:22,600 --> 00:27:25,480
Speaker 3: sheet that the results of all the banks under our coverage.

459
00:27:25,920 --> 00:27:30,400
Speaker 3: And you know, in the second quarter, as I mentioned earlier,

460
00:27:31,440 --> 00:27:35,800
Speaker 3: banks by and large in Europe states pretty resilient in

461
00:27:35,840 --> 00:27:39,400
Speaker 3: terms of their capital buffers in terms of their liquidity buffers,

462
00:27:39,400 --> 00:27:42,280
Speaker 3: in terms of their asset quality, in terms of their profitability.

463
00:27:43,320 --> 00:27:49,760
Speaker 3: But you know within that sector that there is a

464
00:27:50,000 --> 00:27:56,800
Speaker 3: you know, quite quite a variation between top and bottom names.

465
00:27:56,840 --> 00:28:04,080
Speaker 3: Nothing screams as loudly as as credit squeeze, did, you know,

466
00:28:04,080 --> 00:28:08,040
Speaker 3: in terms of deteriorating credits fundamentals. But you know there

467
00:28:08,080 --> 00:28:12,120
Speaker 3: are some some names that do not have the same

468
00:28:12,160 --> 00:28:17,880
Speaker 3: capital buffers as as as that appears, and equally equally

469
00:28:18,119 --> 00:28:20,400
Speaker 3: liquidity and acid quality, you know, they do not all

470
00:28:20,920 --> 00:28:24,840
Speaker 3: screen the same. So there is a degree of variation

471
00:28:24,920 --> 00:28:25,480
Speaker 3: in that sector.

472
00:28:25,480 --> 00:28:28,600
Speaker 1: Absolutely, So certainly when we'll be looking up very closely

473
00:28:29,040 --> 00:28:32,640
Speaker 1: as the European you know, economies come under more strained

474
00:28:32,640 --> 00:28:37,639
Speaker 1: and you know global economic outlook is more tricky. But

475
00:28:38,000 --> 00:28:39,520
Speaker 1: this is one we've got to watch. So thank you

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00:28:39,600 --> 00:28:43,160
Speaker 1: very much, your own U Liss of Bloomberg Intelligence. Thank

477
00:28:43,200 --> 00:28:46,080
Speaker 1: you very much, and do read all of his great

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00:28:46,120 --> 00:28:49,120
Speaker 1: analysis on the Bloomberg Terminal and we hope see you

479
00:28:49,120 --> 00:28:49,880
Speaker 1: back on the show soon.

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00:28:50,120 --> 00:28:51,320
Speaker 3: Likewise, thank you, and.

481
00:28:51,320 --> 00:28:53,760
Speaker 1: Thanks again to Lisa Lee from Bloomberg News. Read all

482
00:28:53,800 --> 00:28:56,479
Speaker 1: of her great credit scoops on the Terminal and at

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Speaker 1: Bloomberg Dot com I'm James Crombie. It's been a plagure

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00:29:00,360 --> 00:29:02,959
Speaker 1: having you join us again next week on the Credit

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Speaker 1: Edge