Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast.
Speaker 1: My name is James Crumby. I'm a senior editor at Bloomberg.
Speaker 1: This week, we're very pleased to have back on the
Speaker 1: show Lisa Lee, who covers all things credit for Bloomberg
Speaker 1: News in London. How are you, Lisa fine?
Speaker 2: Thank you, Thank you for having me. It's actually a
Speaker 2: very warm day in London, very unusual.
Speaker 1: Great well, very excited to get your take on the markets.
Speaker 1: Thanks very much for joining us. We're also delighted to
Speaker 1: see Urun Julius, a credit analys with Bloomberg Intelligence in London.
Speaker 1: We'll be coming back to Urun a bit later to
Speaker 1: talk about banks and eighty one's and the aftermath of
Speaker 1: the credit Swiss collapse. So do to stay with us.
Speaker 1: But first, Lisa Lee with Bloomberg News, you're our global
Speaker 1: guru on clos, which we've talked about quite a lot
Speaker 1: on this show. But let's start with it an easy one.
Speaker 1: What is a clo, how do they work?
Speaker 2: And why do we care so colos buy up lavish loans?
Speaker 2: What are leverage loans? First of all, you ask, those
Speaker 2: are debt loans of junk rated companies. So those on
Speaker 2: the edge of bankruptcy, but nonetheless still can produce very
Speaker 2: good yield and usually back pees buyouts and companies like
Speaker 2: as wide ranging as American Airlines to Burger Kings and
Speaker 2: colos are the biggest buyers, and they buy them to
Speaker 2: turn them into bonds that they sell on to other investors.
Speaker 1: Okay, so issuance of clos hasn't been that active this year,
Speaker 1: but we have been kind of hearing about a revival
Speaker 1: potentially this month. Has that started yet? Are you seeing
Speaker 1: a big boom in COLO issues right now?
Speaker 2: I think what we're seeing is a lot of boom
Speaker 2: on COLO aspirations. So there's a lot of managers who
Speaker 2: are hoping to dos because as you said, there's issuance
Speaker 2: has been very weak. You look now we're in September.
Speaker 2: You've got really three and a half months to get
Speaker 2: deals done, and so people are hoping maybe we can
Speaker 2: get one deal done, two deals down before the end
Speaker 2: of the year and make something of this year. So
Speaker 2: it's not a total, sort of a really bad week year.
Speaker 2: The problem is everyone has the same thought. Everyone wants
Speaker 2: to do a deal right now, and the problem that's
Speaker 2: been riddling them all year long has now gone away,
Speaker 2: which is that they're just not as enough leverage loans
Speaker 2: to turn into bonds. And what is that has done
Speaker 2: is push leverage loan prices higher, too high for them
Speaker 2: to do a deal that pleases every investors in their
Speaker 2: capital stack. And as a COLO, you have to please
Speaker 2: every investor or, you're not going to really have a popular, economic,
Speaker 2: robust COLO.
Speaker 1: Interesting And at the same time, we're seeing a lot
Speaker 1: more hedge funds getting into clos. Who's jumping in and
Speaker 1: why are they getting in now?
Speaker 2: So hedge funds are getting in because you know, one
Speaker 2: thing you've noticed is hedge funds it's a great business.
Speaker 2: It can make so much money. It's two and twenty
Speaker 2: and so there's a lot of volatility in hedge funds.
Speaker 2: You make tons of money, but you can also lose
Speaker 2: a lot of money colos as a manager. As a
Speaker 2: manager of colos, which is versus an investor who buys
Speaker 2: the bond, but one who buys the loans, packages them
Speaker 2: up and then sells them. It's a very steady fee business.
Speaker 2: And if you're a hedge fund already that has a
Speaker 2: lot of credit focus. For instance, Arini is a hedge
Speaker 2: fund by this very famous former credit Swiss corporate trader.
Speaker 2: He knows corporate debt and so that's his hedge fund.
Speaker 2: And so to move into COLO is a very easy
Speaker 2: ancillary business and it provides a steadiness that perhaps, I mean,
Speaker 2: hedge funds don't have. And and I think why now,
Speaker 2: there's always people are always thinking like there's always a
Speaker 2: good time for steady business, and you're thinking about this
Speaker 2: for a long term platform, not just for this moment.
Speaker 2: And so we're seeing a bunch of them, not just Areni,
Speaker 2: but surround Carvel. A number of hedge funds are trying
Speaker 2: to get in. And remember remember there's already a number
Speaker 2: of hedge funds who have COLO platforms, like King Street
Speaker 2: and Anchorage.
Speaker 1: Sorry, that fund you mentioned is Irene Arenis.
Speaker 2: He is an Arene's the word for parrot, and he's
Speaker 2: a big fan of parrots.
Speaker 1: Great, okay. And so these hedge funds that are coming
Speaker 1: in new to the asset class, are they doing big
Speaker 1: deals or just kind of testing the waters right now?
Speaker 2: I think what they're going to do is to just
Speaker 2: get their first deal done. Usually, if you want to
Speaker 2: start a COLO business, regardless of whether you're a hedge
Speaker 2: fund or an asset manager. You have to hire a
Speaker 2: very well known, well regarded COLO manager that's experienced for
Speaker 2: the market to trust you. So they've all done that.
Speaker 2: They've all hired a COLO manager, and now they're meeting
Speaker 2: many of them are meeting with investors, trying to pitch
Speaker 2: how they are different and trying to see if they
Speaker 2: will be interested in their deals.
Speaker 1: I've got to ask, and I know we've talked about
Speaker 1: this before, but hedge fronts clos I mean, it all
Speaker 1: sounds like a risky business to me. Why should we
Speaker 1: not worry about this?
Speaker 2: Well, I don't think we should not worry about this.
Speaker 2: I mean there are systemic risks involved with these kind
Speaker 2: of of securitized products, and the Bank of England and
Speaker 2: the Treasury and the IMF have warned that corporate dead
Speaker 2: could be an area of systemic risks, so we should worry.
Speaker 2: At the moment, we're seeing fairly low default rates. But
Speaker 2: one area of real concern is low. Default rates are
Speaker 2: fairly low, but we don't know whether they will stay
Speaker 2: that way. And the defaults are of the leverage loans
Speaker 2: that they repackage. And what one thing that I've been
Speaker 2: reporting on is how low recovery levels are so defaults
Speaker 2: are like when a company goes perhaps goes bankrupt. Recovery
Speaker 2: is how much money investors lenders get back when something
Speaker 2: goes back. So it's so for a investor, it's not
Speaker 2: just default rate bankruptcy numbers, it's also times that with
Speaker 2: how much money they get back, and the recovery levers
Speaker 2: have been astonishingly low, historically low. So usually colos got
Speaker 2: seventy eighty cents back after a company went bankrupt. Now
Speaker 2: they're looking at more like twenty five cents, So that
Speaker 2: is really changing how they have to think about their
Speaker 2: investment at the moment. I don't think they're pricing this in,
Speaker 2: but people are getting more and more concerned. So one
Speaker 2: thing you've seen in Europe is some brigade capital management retool.
Speaker 2: There exists two of their existing colos so they can
Speaker 2: better fight off what some people have been calling lender
Speaker 2: on lender of violence or credit or on credit of violence,
Speaker 2: where maybe a aggressive hedge fund comes in, puts in
Speaker 2: new money and pushes other investors other lenders down the
Speaker 2: priority line. And because of this kind of maneuver, some
Speaker 2: bankruptcies have produced zero for for first lean lenders.
Speaker 1: So you raise a lot of issues at least, I mean,
Speaker 1: I've got to start trying to unpack some of them.
Speaker 1: But you're talking about hedge funds getting into clos At
Speaker 1: the same time, some of the risky maneuvers that they're
Speaker 1: they're doing are what we have called creditor on credited
Speaker 1: violence some clos in response to trying to rework their
Speaker 1: their rules to make it tougher to to pull those
Speaker 1: things off. It all just sounds like a total, total mess.
Speaker 1: I mean, and then and then at the same time,
Speaker 1: because of these aggressive strategies, the recoveries when you go
Speaker 1: through a default are much lower for for investors. I mean,
Speaker 1: what's the takeaway here? I mean, it's this market just
Speaker 1: becoming a total scrap. And I mean, is it is
Speaker 1: it getting more risky as a result?
Speaker 2: Oh, I want to say it's having a total scrap.
Speaker 2: I think there's a lot of things to worry about
Speaker 2: and things to watch for. As of as of now,
Speaker 2: the faults are still low. As of now, recoveries are low,
Speaker 2: but they could go higher as of now. But it
Speaker 2: also sort of depends on the broader economy if how
Speaker 2: interest rates go where if we have a recession or
Speaker 2: not if interest rate, if inflation picks up again, or
Speaker 2: if the FED doesn't manage a soft landing and we
Speaker 2: go into a recession, then I think that this becomes
Speaker 2: more and more of a worry because hedge funds, not
Speaker 2: the ones, even the ones we have have COLO shops,
Speaker 2: have raised a lot of money for distressed situations, and
Speaker 2: they have pools of capital ready to put to do
Speaker 2: these aggressive tactics, and they could really leave the COLO
Speaker 2: and levision role market in a lot of damage.
Speaker 1: But let's get back to where you started with the
Speaker 1: hedge funds getting in and they're getting into this business
Speaker 1: because it is a stable fee generating business. At the
Speaker 1: same time we're saying that it's it's under a lot
Speaker 1: of pressure and there is getting more volatile. I mean,
Speaker 1: how do we square that circle?
Speaker 2: Because the manager is not up for the law. So
Speaker 2: remember I told you the manager sells the bonds. The
Speaker 2: people who get hurt are the bonds, the people who
Speaker 2: bought the bonds, not the managers who sold the bonds.
Speaker 2: So getting into the steady fee business, you've hopefully, hopefully
Speaker 2: put off the risk to somebody else. Now, the problem
Speaker 2: oftentimes with any kind of financial crisis that you think
Speaker 2: you've sold off the risk, you haven't. But in this situation,
Speaker 2: it really does seem like they've sold off the risk.
Speaker 2: But it doesn't mean that that risk goes somewhere. It's
Speaker 2: never it never disappears. I think that's the kernel of
Speaker 2: truth and finances. You can move away risk, but you
Speaker 2: can't make risk disappear. So it's just in other people's
Speaker 2: pockets that this problem exists, and.
Speaker 1: It may take a while for that problem to show up. Yes, okay,
Speaker 1: so let's just go back to the rule changes that
Speaker 1: we're talking about in some of these clos to try
Speaker 1: and fend off these attacks by aggressive hedge funds. Will
Speaker 1: these amendments become an industry standard?
Speaker 2: Do we think in the US they become. They're more
Speaker 2: standard than in Europe. But I've talked to managers and
Speaker 2: lawyers and they definitely think that this will pick up,
Speaker 2: that there is great interest in doing them. Doesn't take
Speaker 2: that much effort. They've like sort of innovated them to
Speaker 2: the point that it doesn't cost too much to do
Speaker 2: and there's only benefit to have it, and there isn't
Speaker 2: much of a downside to not having them. So I
Speaker 2: do think it's going to become more of an industry norm.
Speaker 2: But we'll see sometimes people can get really complacent.
Speaker 1: And so let's just go back to the original point
Speaker 1: about clos. You know that they are basically repackaging loans
Speaker 1: to pretty you know, stable, you know, large companies that
Speaker 1: are household names. Does that make them more or less risky?
Speaker 1: And what's their performance being over time? I mean, is
Speaker 1: this something like the CDOs that are really very dangerous
Speaker 1: or has it been a long term performer?
Speaker 2: First, for the longest time, clos were one of the
Speaker 2: areas in the securitization market that performed fairly well during
Speaker 2: the financial crisis, which is the reason why they came
Speaker 2: back post crisis. So CE deals never came back. CBOs
Speaker 2: never came back in the way they were. So they
Speaker 2: did come back, they did perform well. But past is
Speaker 2: not pro blogs to the future, and the markets changed
Speaker 2: a great deal, so it's not to say that that
Speaker 2: can't cause issues in the future. But history has shown
Speaker 2: them to be pretty sturdy, and they've worked to become
Speaker 2: more sturdy. But it's hard to know given all the
Speaker 2: changed market and the way hedge funds behave now and
Speaker 2: how restructures are going a lot of it will depend
Speaker 2: on how bad a recession there is and how bad
Speaker 2: and how high inflation is and how high interest rates are.
Speaker 1: So on that point, and before we talk to your
Speaker 1: own Julius Bloomberg intelligence about the banks, what else is
Speaker 1: on your radar? I mean, as you say, the economy
Speaker 1: in Europe particularly doesn't look great. Should we be worried
Speaker 1: about risk assets here? You've also been writing a lot
Speaker 1: about private credit. Is you know, bigger and bigger deals,
Speaker 1: more and more fundraising. Is it all rosy over there
Speaker 1: as well?
Speaker 2: No, I think there's Well, it depends on who you're
Speaker 2: talking to. The private credit mandre just having a great
Speaker 2: time raising money. And since we started with clos, they're
Speaker 2: looking a little worried because private credit is taking away
Speaker 2: a lot of the loans that they used to repackage.
Speaker 2: So they're worried there. And a big topic right now
Speaker 2: is private credit clos So should we more move more
Speaker 2: to private credit clos? Should we securitize this? Private credit
Speaker 2: in the US is already happening, and it's picking up
Speaker 2: and it's booming. It's actually the one area of the
Speaker 2: clo market that's booming and Europeans managers were wondering whether
Speaker 2: they can get into the action as well. So in
Speaker 2: one so there's they're worries about how much private credit
Speaker 2: is taking away from the leveraged loanwark gets as high
Speaker 2: yield and lavish loan and private credit sort of converges,
Speaker 2: and the same time people are all thinking about, okay,
Speaker 2: well then what's the opportunity next, Well, how can I
Speaker 2: still make money?
Speaker 1: So we really will be working very close at your
Speaker 1: coverage to kind of figure out what's going on, why
Speaker 1: it's happening, and what are the risks. It's a really
Speaker 1: fascinating one to watch. Great stuff. Lisa Lee from Bloomberg News,
Speaker 1: thank you so much for joining us.
Speaker 2: Thank you for having me. It's been a pleasure.
Speaker 1: As always, read all of Lisa's scoops on the Bloomberg
Speaker 1: terminal and of course at Bloomberg dot com. Moving on
Speaker 1: to another big topic. As I mentioned earlier, we are
Speaker 1: very fortunate to have with us Urun Julius, who covers
Speaker 1: credit for Bloomberg Intelligence based in London, and it's focused
Speaker 1: on the banks. How's it going over there?
Speaker 2: Urun?
Speaker 3: All good? Thank you very much, s James, and thank
Speaker 3: you for having me on the podcast.
Speaker 1: Thanks for joining us. And last time we spoke, Credit Suisse,
Speaker 1: which was deemed at the time to be a global
Speaker 1: systemically important bank, collapsed. That was in March. How has
Speaker 1: that impacted the European banking sector? What was the fallout there?
Speaker 3: Well, I think it may have done some permanent damage
Speaker 3: to Switzerland's reputation of calmness and predictability, But the impact
Speaker 3: on the wider European banking market and more specifically on
Speaker 3: the eighty one market, I think is more nuanced. I
Speaker 3: think most eighty one investors have concluded that there is
Speaker 3: no readacross between Switzerland and some of the other jurisdictions
Speaker 3: EU and UK regulates that came out quite strongly in
Speaker 3: back in March in support of respecting the claims hierarchy
Speaker 3: in case of a bank failure, and I think most
Speaker 3: eighty one investors have also concluded that there's no reta
Speaker 3: cross between credits Feeze and other European banks. If you
Speaker 3: look at the banks credit fundamentals, you know these have
Speaker 3: quite quite resilient and judging from their second quarter results.
Speaker 1: Okay, so let me start you there. You mentioned eighty
Speaker 1: one's which stands for additional tier one. It's a type
Speaker 1: of risky bank debt. But before we get into the
Speaker 1: sort of details of what's going on there, can I
Speaker 1: ask you just to please describe what those are, how
Speaker 1: they work for those that aren't aware.
Speaker 3: Yes, So these are the most junior type of instruments
Speaker 3: that banks can issue, mostly in Europe, but also in
Speaker 3: a lot of other jurisdictions outside of the United States.
Speaker 3: And they see just above common equity, and they share
Speaker 3: with common equity a number of characteristics. They are perpetual instruments,
Speaker 3: so they do not have a fixed maturity date. They
Speaker 3: do have an issue a call date and if not
Speaker 3: called subsequent issuer call dates, but no fixed maturity debt.
Speaker 3: That's the first characteristic. In addition to that, they have
Speaker 3: discretionary coupon cancelation language, so that means that the issuer
Speaker 3: can decide to issue a coupon whenever it wants to
Speaker 3: do so. And then lastly, embedded in the eighty one
Speaker 3: structure is principal laws mechanism, and that means that if
Speaker 3: a certain capital trigger is hit that the part value
Speaker 3: of those instruments will either be written down temporarily or
Speaker 3: as was the case with the credit suis eighty one's
Speaker 3: permanently all they are. They are converted into common.
Speaker 1: Equity, so the eighty one one they're also known as
Speaker 1: contingent convertibles. They help banks comply with capital requirements as well,
Speaker 1: and they were created after the financial crisis as a
Speaker 1: way to imp losses on creditors without using taxpayer money, right,
Speaker 1: and that's how they kind.
Speaker 3: Of that's the history, that's right, yes, yeah, yeah, Okay, So.
Speaker 1: As you mentioned in the credit Swiss collapse that we
Speaker 1: saw earlier this year, the eighty one bonds were fully
Speaker 1: written down, which was I think a bit of a
Speaker 1: shock to some people and canceled by the Swiss authorities.
Speaker 1: How did this affect the eighty one market? Was their
Speaker 1: permanent damage?
Speaker 3: Well, most of the eighty one prizal lines that we
Speaker 3: saw back in March have now been reversed. Having said that,
Speaker 3: over the past few months, eighty one's have been more
Speaker 3: or less range bound at around ten percent yield to
Speaker 3: worst for Euro and dollar denominated the bonds, so eighty
Speaker 3: one yields they've they've basically reset to a higher level
Speaker 3: if you compare it with where we were back in
Speaker 3: January early February. This is mostly been due to higher
Speaker 3: rates rather than high spreads trading volumes in eighty one,
Speaker 3: so they have come down from the highs that we
Speaker 3: saw back in March. Some of this is probably due
Speaker 3: to the absence of eighty one issues between March and June.
Speaker 3: Some of it may also be due to seasonality over
Speaker 3: the quieter summer months. But it may also be the
Speaker 3: case that some investors have decided to no longer be
Speaker 3: involved in the eighty one space given their volatility and
Speaker 3: the risk of impromptu rule changes by governments as we
Speaker 3: saw in Switzerland, and that may have heard demand technicals
Speaker 3: and liquidity, and may also have made eighty one prices
Speaker 3: potentially more volatile. But if you compare current trading levels
Speaker 3: with previous years, eighty one trading volumes actually don't look all.
Speaker 1: That bad, so not really a huge impact then, I mean,
Speaker 1: the disappearance of this mass of institution credit Swiss. Other
Speaker 1: than a kind of a slap to the Swiss reputation
Speaker 1: for for you know, safe hands and you know solid banking,
Speaker 1: there hasn't really been that much long term impact on
Speaker 1: on on the market.
Speaker 3: Well, you know, maybe it's too soon to say, but
Speaker 3: you know. I started that by saying that the reader
Speaker 3: cross between Switzerland and other jurisdictions is limited. The readacross
Speaker 3: between credit Swiss and other European banks is also limited.
Speaker 3: Valuations have recovered, Trading volumes are down, but not massively so,
Speaker 3: so you know, by the look of things, things have
Speaker 3: normalized fairly quickly. But look, a precedent has been said,
Speaker 3: and I think some investors may have decided that, you know,
Speaker 3: this is just too wild a right and no longer
Speaker 3: wanted to be evolved in it.
Speaker 1: But if you bought some of that stuff during the
Speaker 1: height of the panic earlier this year, you would have
Speaker 1: made a lot of money. Are there's still opportunities out there?
Speaker 1: Are they're still cheap eighty one bonds?
Speaker 3: There are a few smaller issues, you know, issued by
Speaker 3: some smaller, more marginal banks that are trading at very
Speaker 3: wide levels, It's true. And then some of the Swiss
Speaker 3: Bank eighty one's I was away from ubs are also
Speaker 3: still trading at fairly wide levels. So I do think
Speaker 3: that there is a bit of a Swiss discount being
Speaker 3: applied to some of theirs. But some of those instruments,
Speaker 3: they are denominated in Swiss francs rather than in euros
Speaker 3: or dollars. So away from that, yeah, I think the
Speaker 3: large majority of the of the eighty one space has
Speaker 3: has has recovered quite quite nicely.
Speaker 1: Interesting, So let's talk about primary market issuance. You know,
Speaker 1: new debt sales in the US. The beginning of September,
Speaker 1: we kicked off with the busiest day in three years
Speaker 1: for primary high grade bond issuance. I mean that obviously
Speaker 1: includes debt of all types. But has the eighty one
Speaker 1: market also rebounded.
Speaker 3: Yeah, So the primary market in eighty one's was shot
Speaker 3: between March and to June. That has now reopened. We've
Speaker 3: seen i think seven banks issue mostly in euros, and
Speaker 3: all the newly issued eighty ones they are trading around
Speaker 3: bar or a little above it. So perhaps that could
Speaker 3: also be taken as an indication that the dust has settled,
Speaker 3: that you know, invested nerves have steadied, and eighty one
Speaker 3: issuers have also become a bit more confident.
Speaker 1: So let's talk about the calls your own the market has.
Speaker 1: According to Bloomberg News, there's about eighty four billion in
Speaker 1: notes that have calls over the next two years. Typically
Speaker 1: banks would call that debt and replace it with new debt,
Speaker 1: so that's you know, an issuance driver. But you've also
Speaker 1: noted non call risk. Can you talk a bit about
Speaker 1: the call and the non call risk and how that works.
Speaker 3: Yeah, So, until recently, there's always been expectation in Europe
Speaker 3: that eighty one bombs would get called at the first
Speaker 3: call date. Back in twenty twenty we saw the first
Speaker 3: cases of bombs North getting called a first call date
Speaker 3: something there was the first one but then decided to
Speaker 3: call later on, and then you had Deutsche Bank and Lloyd's.
Speaker 3: Since then, there have been a few others. In the
Speaker 3: fourth quarter of last year you had Rifis and Sabadel,
Speaker 3: but then Sabadel did a call later on, so there's
Speaker 3: been a few cases, had forth cases Going into this year,
Speaker 3: non core risks gone up because of the economics they've changed,
Speaker 3: you know, back end coopon reset indices, they have moved
Speaker 3: higher in line with higher rates, and as a result
Speaker 3: of that, you now have to be a bit more
Speaker 3: careful about this risk. You can no longer assume that
Speaker 3: every single eighty one bond will get called. The first
Speaker 3: thing you have to look at is the starting capital
Speaker 3: position of an issuer. If a bank is well capitalized,
Speaker 3: you know, then they have got discretion to do as
Speaker 3: they please. If that is not the case, then a
Speaker 3: bank will need to issue a replacement bond, and if
Speaker 3: it does so, then you have to look at the
Speaker 3: core economics. So, in other words, the replacement bond at
Speaker 3: what level was it issued? Was it at the same level,
Speaker 3: cheaper or more expensive? If the new bond was issued
Speaker 3: at a more expensive level, then there is a risk
Speaker 3: that the regulator will say, well, listen, you are you
Speaker 3: should not call the bond coming up for call. So
Speaker 3: the ECB has been a bit ambivalent on this topic.
Speaker 3: They have allowed some non economic calls. But very recently
Speaker 3: we saw something there not calling. It's five and a
Speaker 3: quarter euro bones. That bond has its coming up for
Speaker 3: call actually at the end of this month, at the
Speaker 3: end of September, but the call notice period has now expired,
Speaker 3: and that in effect means that it will not get called.
Speaker 3: Something that had not issued replacement bond, and you know,
Speaker 3: because of its capital position, it meant that it was
Speaker 3: not going to call. Was widely expected, so that it
Speaker 3: wasn't a huge surprise, but it does on the score
Speaker 3: the fact that this is this is a risk that
Speaker 3: investors need to consider carefully.
Speaker 1: And even more uncertainty, which is maybe contribute fivoriting to
Speaker 1: the volatility and the liquidity issues that you mentioned earlier.
Speaker 1: That's right, yes, So let's look ahead, you run to
Speaker 1: the rest of the year and maybe into next year.
Speaker 1: What's next for the eighty one sector? What have you
Speaker 1: got your eye on?
Speaker 3: So there's only one bond left for call this year,
Speaker 3: that's the Social Station General dollar seven and seven eighths
Speaker 3: callable in December. This particular bond will likely get called
Speaker 3: as it contains some legacy language. The bond was issued
Speaker 3: on the UK law, which is a bit of an
Speaker 3: issue after Brexit. Looking into next year, there will be
Speaker 3: thirty three eighty one's coming up a first call across
Speaker 3: euro dollar and Sterling for an equivalent or thirty three
Speaker 3: billion dollars, and that is that's an increase on previous years.
Speaker 3: So you know, next year is shaping up to be
Speaker 3: quite quite a big big year for calls and probably
Speaker 3: also for issuance, and the year beyond twenty twenty five
Speaker 3: is even larger. Now, over the past week, we've seen
Speaker 3: two banks doing a tender offer for one of their
Speaker 3: existing eighty ones with the first call date next year
Speaker 3: and simultaneously issue a new eighty one with a tender
Speaker 3: offer being contingent on the successful issue of the new bond.
Speaker 3: By the way, the two banks are in Tessa in
Speaker 3: Italy and as the Group Bank in Austria. So that's
Speaker 3: that's a new way of replacing existing eighty one bonds
Speaker 3: coming up for call, which seems to be more efficient
Speaker 3: and so we think may well be adopted more broadly and.
Speaker 1: More broadly in the sector your own. What else should
Speaker 1: we be looking for in European financials? You know, when
Speaker 1: when there was that big crisis with credits with some
Speaker 1: of the other band for kind of wobbling, Deutsche Bank
Speaker 1: was under a lot of stress. Are the other banks
Speaker 1: that we should be worried about? Are we expecting another
Speaker 1: replay of credits Swiss?
Speaker 3: Well, you can never exclude that sort of stress scenario
Speaker 3: playing out. But what we do is every quarter we
Speaker 3: we have a close look at the at the balance
Speaker 3: sheet that the results of all the banks under our coverage.
Speaker 3: And you know, in the second quarter, as I mentioned earlier,
Speaker 3: banks by and large in Europe states pretty resilient in
Speaker 3: terms of their capital buffers in terms of their liquidity buffers,
Speaker 3: in terms of their asset quality, in terms of their profitability.
Speaker 3: But you know within that sector that there is a
Speaker 3: you know, quite quite a variation between top and bottom names.
Speaker 3: Nothing screams as loudly as as credit squeeze, did, you know,
Speaker 3: in terms of deteriorating credits fundamentals. But you know there
Speaker 3: are some some names that do not have the same
Speaker 3: capital buffers as as as that appears, and equally equally
Speaker 3: liquidity and acid quality, you know, they do not all
Speaker 3: screen the same. So there is a degree of variation
Speaker 3: in that sector.
Speaker 1: Absolutely, So certainly when we'll be looking up very closely
Speaker 1: as the European you know, economies come under more strained
Speaker 1: and you know global economic outlook is more tricky. But
Speaker 1: this is one we've got to watch. So thank you
Speaker 1: very much, your own U Liss of Bloomberg Intelligence. Thank
Speaker 1: you very much, and do read all of his great
Speaker 1: analysis on the Bloomberg Terminal and we hope see you
Speaker 1: back on the show soon.
Speaker 3: Likewise, thank you, and.
Speaker 1: Thanks again to Lisa Lee from Bloomberg News. Read all
Speaker 1: of her great credit scoops on the Terminal and at
Speaker 1: Bloomberg Dot com I'm James Crombie. It's been a plagure
Speaker 1: having you join us again next week on the Credit
Speaker 1: Edge