Bank of America, Morgan Stanley and Wells Fargo flooded the market with US $18.75bn of senior debt on Tuesday, jumping into the primary with bond offerings after releasing results.
Bank of America launched a US $6.75bn four-part trade, Morgan Stanley a US $7bn three-part deal and Wells Fargo a US $5bn two-part offering - and all three were among the biggest deals to hit the red-hot bond market so far this year.
The deals helped propel primary volumes to the second-largest January on record with two weeks still to go, as issuers race to print deals before any potential volatility ahead.
Each bank trade Tuesday offered at least one callable tranche, seizing on interest in new structures that satisfy post-crisis capital requirements for financial institutions.
"The deals were pretty much as expected," Bill Hines, a portfolio manager at Aberdeen Asset Management, told IFR.
"TLAC has been expedited to the start of 2019, and banks have some big quotas that need to be filled."
Bank of America's holdco deal included three tranches with fixed-to-floating rate call options - a new structure for TLAC-eligible deals that Citigroup used earlier this month.
"I would expect fixed-to-floating to become the industry standard," said one syndicate banker. "It makes more sense."
Prior to Citigroup's trade, most TLAC deals had a fixed coupon on the call date - an option that investors put a premium on, because of the uncertainty of where rates will be.
BAC launched a US $1.5bn 6NC5 at T+130bp, a US $2.5bn 11NC10 at T+150bp, a US $2bn 31NC30 at T+150bp and a US $750m 6NC5 FRN at L+116bp after pulling in pricing by 5-15bp across the curve.
The shortest-dated 6NC5 looked to come roughly flat to the issuer's curve, based on where BAC's 2.503% 2022s were trading at around G+126-127bp and adjusting for a slight maturity extension.
That tight pricing was achieved even though BAC is expected to be a heavy issuer this year. "BAC's 2016 debt issuance significantly lagged that of its peers," Wells Fargo analyst James Strecker wrote in a note.
"So we expect the company to be a more active issuer in 2017, given its TLAC shortfall and the 2019 deadline to bridge that gap." Strecker estimates BAC needs to raise US $31bn annually through 2018 to meet TLAC needs and refinance debt. Its average annual holdco issuance over the past three years has been US $23bn, he said.
Wells Fargo meanwhile launched a US $5bn two-part deal, comprised of a US $3.75bn 6NC5 fixed-coupon deal at T+125bp - 15bp inside IPTs - and a US $1.25bn 6NC5 FRN at L+111bp.
Morgan Stanley priced the biggest deal of the day, a US $7bn three-part deal, the largest sold by a US bank so far this year even though it has less pressing TLAC needs.
It launched a US $3bn 10-year fixed at T+143bp, a US $2.25bn 30-year fixed at T+148bp and a US $1.75bn 5NC4 FRN at L+118bp with pricing pulled in by 12bp through the bookbuild. The final book was US $13.35bn.
Of note were the two 30-year tranches from Bank of America and Morgan Stanley, which some market participants think we will see more of.
"We are seeing more 30-year bonds now that we have more clarity on TLAC," said Hines.
"Banks don't really like issuing that long, but for TLAC purposes now might be a good time." The trio of deals came after Bank of America posted higher earnings Friday on the back of trading revenue gains, higher interest rates, healthy loan growth and cost controls.
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