Big bank bonanza as Citi, Wells and JPM sell US$12 billion

Citigroup, Wells Fargo and J.P. Morgan flooded the high-grade bond market with US $12bn of new debt on Thursday, surprising market participants with the opportunistic deals. The new deals spanned a variety of structures, including senior unsecured in fixed and floating rate format - one with a call option - as well as long-dated subordinated debt.
"It's surprising to see three banks with benchmark deals on the same day," said a DCM banker. "But it shows you they are all observing that markets are great, spreads are low and you might as well get some cash in the door now." US high-grade bank spreads have tightened an average of 3bp since Donald Trump's victory in the presidential election on November 8, according to Bank of America Merrill Lynch data.
With the Federal Reserve expected to raise interest rates in two weeks and the Italian constitutional referendum scheduled for this weekend, banks have plenty of reason to take advantage of investor demand now, said one investor. "I think the Italian referendum is a bigger deal than people think," said the investor. Citigroup - which in late October said that it had no more long term debt to sell in 2016 - sold a US $2.25bn five-year fixed deal at T+105bp, and a US $750m five-year floater at L+107bp.
The bonds came in line with guidance and 15bp inside the T+120bp area IPTs, offering a 3bp new issue concession at final pricing. The deal received US $5bn of demand. Wells Fargo sold US $1.5bn of two-year bonds and US $3.5bn of three-year bonds in fixed and floating format through its bank-level subsidiary, as well as a US $2bn 30-year holding company subordinated bond which won plaudits from rival bankers. "That was definitely the smartest trade of the day," said the DCM banker.
"If you believe we are nearing the end of the credit rally, you want to issue your most volatile high-beta trade. Front-end senior is not high beta, but 30-year sub is." All Wells' tranches were trading 1bp-2bp tighter after pricing. J.P. Morgan was the only bank to include a TLAC-efficient call option in its deal - a structure it debuted in August which was subsequently adopted by other US and European banks. JPM sold US $1.5bn of fixed rate 6NC5 bonds at T+108bp as well as a US $500m floater with the same maturity structure at L+100bp. That deal priced at the tight end of guidance but only 2bp inside IPTs of T+110bp area. It offered around 8bp of new issue concession at final pricing.