EU FINANCIALS: Financials - Week in Review 21/02/2025

Financial bonds, both banks and insurance, gave back a small amount of the previous weeks good performance, underperforming the market as a whole.  Spreads were higher, but on average less than a basis point. CDS however continued to outperform. Itraxx Snrfin and Itraxx Subfin expressed as a ratio of Itraxx Europe has fallen to multi year lows.

Headlines

•  The UK courts rebuffed any suggestion that UK Chancellor Racheal Reeves could impact their judgement this week, after she was reported to be looking to intervene in the UK motor finance case. She was always technically unable to affect the court's decision and but while the political environment remains improved around the issue, much uncertainty remains. Close Brothers, Barclays, Lloyds and Santander UK are the most affected and their bonds sold off this week. For Close, the rally on the initial announcement remains much larger than this week's sell off.  https://mni.marketnews.com/4gXEaYh

Results

• The key line item in Lloyds results was the additional £700m provision for motor finance redress, bringing the total to 1,150bn - and suggesting the other involved entities would likely need to provision more as well. Excluding this, the results were positive and guidance upbeat.  https://mni.marketnews.com/4k84OR4
• HSBC had a strong quarter - looking through the elevated amount of moving parts. Restructuring cost will remain elevated due to reorganisation. Asset quality, revenue generation and capital appear good so far. https://mni.marketnews.com/4b9WLiO
• Standard Chartered revenue and expenses surprised to the upside - but was still a slight beat. https://mni.marketnews.com/4gP6xYJ
• Insurers NN Group's results were very stable https://mni.marketnews.com/4b9oCzC but failed to show the growth Zurich's managed and whose results were excellent https://mni.marketnews.com/418tYXg

New Issues

• It was an unexpectedly busy week for new issuance which included 4 AT1s. Only the Barclays AT1 came with a yield above our FV, printing at 7.625% vs our FV at 7.5%.  It looks to have narrowed half that gap.  https://mni.marketnews.com/41uSSRd. In contrast UniCredit printed at 5.625% (-0.125% below our FV) at it looks to have traded down to settle close to our FV https://mni.marketnews.com/4bivevx.  ABN Amro's new AT1 priced flat to our FV and looks to be up around 0.5pts. Sumibank came well inside out expectation, pushing as low as 6.45%.     
• Tier 2 saw 3 issuers including CFFHLD, a French challenger bank. It priced at MS+275, wide of our MS+260 FV, and is currently trading at Z+245. It is a very interesting name which if it gets its cost structure correct could rally meaningfully.  https://mni.marketnews.com/3EYufEA . BBVA and NWG also issued tier 2s and both came very close to our FV.
• BPCE's sr non-preferred bond seemed to leave 5bps on the table, coming at MS+125 vs our 120bps FV - it has since closed this gap. Nordea and DB also issued Sr non-prefs
• The pick of the sr preferred new issues was Criteria Caixa coming at MS+100 which we thought was 5bps too wide. It is currently trading c.Z+95. https://mni.marketnews.com/4hKTJnG .
• Arion bank priced its senior preferred bond 10bps inside our FV and is trading 2bps inside reoffer https://mni.marketnews.com/41aBa57 . Credit Agricole and Hypo NOE also issued senior preferred bonds which came close to our FV.