Two get Yankee CoCo ball rolling

* HSBC, Standard Chartered find strong demand for AT1 trades

* Credit Suisse debuts holdco TLAC debt

* All three trade tighter in aftermarket

By Danielle Robinson

NEW YORK, March 27 (IFR) - Yankee European bank CoCos andbond issuance to meet total loss absorbing capital regulationsfinally got going in the US dollar market this week.

HSBC and Standard Chartered brought Additional Tier 1 debtwhile Credit Suisse the first debt offering from a holdingcompany entity of a European bank outside of the UK.

All three met an overwhelming response, despite the rest ofthe market groaning under the weight of record issuance inMarch.

Credit Suisse received more than US$10bn of orders for itsUS$4bn issue of five and 10-year holdco notes, and HSBC US$16bnfor its US$2.25bn 6.375% perpetual non-call 10-year AdditionalTier 1 CoCo.

Both were dwarfed by the US$22bn orders from 550 investorsfor Standard Chartered's US$2bn 6.5% perp non-call five-yearAT1.

"We are delighted with the transaction," said Rupert Mingay,group treasurer for Standard Chartered. "It attractedsignificant global demand from high-quality investors. We arebuilding towards US$6bn of AT1 capital by 2019 as part of a CRDIV capital-efficient structure and this is a major step towardsthat."

Both deals were outstanding performers, with HSBC bid at 102and Standard Chartered at 100.75 on Thursday. Although US$15bnof Standard Chartered's book came from Asia, a good US$7bn ofEuropean and US demand is not to be sneezed at.

YANKEE SURGE?

US underwriters hope the size of the two deals and thedemand they showed for the product will help turn the attentionback on to the Yankee market for AT1 issuance.

"I think other [European banks] that have sizeable AT1 needsand with global businesses will look at the demand dynamics ofthese two trades and come to the Yankee market," said one DCMorigination banker at a major US bond house.

All year, US bankers have watched potential AT1 underwritingbusiness go to the Reg S-only dollar bond market, which excludesdomestic US investors.

Smaller banks with minimal AT1 issuance needs such asSwedbank and DNB bypassed the Yankee market earlier in the yearbecause the Reg S market offered attractive dollar pricingwithout the tedium of US documentation and disclosure requiredfor SEC registration and the 144A global bond format.

Some say that is a trend that is unlikely to change for thesmaller Continental European banks with small AT1 needs andlittle in the way of a global business.

But for the big global banks with business in the US andwith capital needs that require larger deals and investordiversification it will pay to come to the Yankee market, saybankers.

"The fact remains that you can save something like 25bp bycoming to the Yankee market rather than the Reg S-only market -it's what accessing a truly global investor base will get you,"said one syndicate head in charge of Yankee financials issuance.

Banks in jurisdictions that give CoCos debt rather thanequity accounting treatment will also look at the basis swaplevels and see that names such as HSBC and Standard Charteredcan save up to 50bp by issuing in dollars rather than euros atthe moment.

European banks have about 125bn of AT1 needs to fill by theend of 2018, some 45% or around US$60bn of which could end up indollars, according to one US bank's internal estimates.

"It's safe to assume at least 50%-60% of that [potentialdollar amount] is going to be in global format," said onebanker.

That would equate to about US$10bn to US$12bn each year overthe next three years, if those estimates pan out, and compareswith US$17.5bn of Yankee AT1s in 2014.

LESS CONFIDENT

US bankers are less confident that there will be a flood ofsimilar holdco deals from non-UK European banks, despite theclear demand Credit Suisse's inaugural holdco issue of US$1.5bnof five and US$2.5bn of 10-year notes attracted.

The UK and Swiss banks are part of a select group of banksin Europe with holdco structures and may end up being aminority, if newly proposed German laws are enacted and thenadopted by other countries.

Germany has drafted legislation that would mean seniorbondholders would face losses in resolution before unguaranteeddepositors and counterparties.

"This would make it easier to resolve banks in Germany andcould become a blueprint for addressing TLAC requirements forother global systemically important banks, without the burden ofsetting up holding companies," said Fitch in a report releasedin the past week.

A smaller-than-expected onslaught of TLAC issuance would bea welcome relief for US investors overweight US bank debt.

Based on current regulatory proposals, the expected need forTLAC for the US banks alone could be as much as US$375bn betweennow and 2019.

"There will be a huge issuance need to meet these criteria,"said Jason Shoup, investment-grade credit strategist atCitigroup.

"There is a relatively good fundamental improvement storyfor the US banks, but we don't think that necessarily matters.We think it is more about supply to come as far as theperformance of the debt is concerned. We have a lot of clientswith overweight positions in financials and banks and we seeTLAC as an opportunity to second-guess that trade." (Reporting by Danielle Robinson, Editing by Matthew Davies,Richard Stanbury)