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Julio Suarez
AFME Prudential Data Report 3Q2020 and European CoCo market in 2020FY
25 Jan 2021
This report collates information on EU GSIBs’ prudential capital, leverage and liquidity ratios with updated statistics as at 30 September 2020. It also illustrates the recent performance of the debt and contingent convertibles (CoCo) markets and the funding structure for banks in Europe for the full year 2020. Among the main findings of this report: European banks issued a total of €33.4bn in Contingent Convertible (CoCo) securities during 2020FY, surpassing the amount observed in 2019FY (€32bn). CoCo issuance was abruptly interrupted during the months of March and April due to the sharp increase in risk premia as a result of the market turbulence generated by the COVID-19 outbreak. However, market conditions significantly improved in the second half of the year. Dividend Distributions in 2021: The Box on pages 21-25 summarises the recent regulatory actions undertaken by Euro Area, UK and US central banks with a more flexible approach to dividend distributions for their supervised banks. After setting record CET1 capital buffers, Euro area, UK and US regulators recently flexibilised their policy approach to dividend distribution, although maintaining some degree of caution considering the ongoing economic uncertainty. European GSIBs reported in 3Q 2020 record CET1, T1 capital, TLAC and Liquidity Coverage ratios to continue to support businesses during the current economic environment. According to AFME estimates, compliance with the regulatory request of withholding 2019FY dividend distribution contributed 30bps to banks’ CET1 ratio as at 3Q 2020. Additionally, banks have continued to generate internal capital through profit retention, accumulating a total of 36bps on CET1. Other regulatory relief measures such as the CRR quick fix have contributed to improve banks CET1 ratios by 24bps as at 3Q of 2020 based on European GSIBs public disclosures.
Julio Suarez
AFME Equity Primary Markets and Trading Report Q3 2020
10 Dec 2020
AFME is pleased to circulate its Equity Primary Markets and Trading Report for the third quarter of 2020 (Q3 2020). The report provides an update on the performance of the equity market in Europe in activities such as primary issuance, Mergers and Acquisitions (M&A), trading, and equity valuations Key highlights: Equity underwriting on European exchanges accumulated a total of €124.4 bn in proceeds in the first three quarters of 2020, an increase of 44% from the value originated in the same period of 2019 (€86.4 bn). Follow-on offerings rose 71% YtD, the largest 1Q-3Q amount since 2017. IPO proceeds decreased 59% YtD, the lowest 1Q-3Q amount since 2012. Completed Mergers and Acquisitions (M&A) of European companies totalled €397.7bn in Q1-Q3 2020 a 44% decrease from the amount completed in Q1-Q3 2019 (€704.2bn). The amount of announced M&A totalled €543.7bn in Q1-Q3 2020 a 16% decrease from the same period of 2019. Average daily equity trading activity on European main markets and MTFs stood at €69.5bn in Q1-Q3 2020, 17% above the average daily value observed in Q1-Q3 2019 (€59.2bn). Bid-ask spreads for benchmark equity indices of European shares has continued to decline during the year. However, liquidity conditions, as measured by bid-ask spreads, have not returned to pre-COVID levels. Update on MiFID II dark trading caps: The European Double Volume Cap (DVC) mechanism seeks to limit the amount of dark trading of equity-like instruments on EU venues. ESMA publishes on a monthly basis the list of instruments temporarily banned from dark trading at the EU or trading venue level after their trading volumes surpass pre-determined dark trading thresholds. The number of instruments banned from dark trading has declined in the course of the year at 246 instruments suspended at the EU or trading venue level as of Nov-20 (from above 1,200 in Aug-18).
Julio Suarez
AFME Securitisation Data Report Q3 2020
10 Dec 2020
AFME is pleased to circulate its Q3 2020 Securitisation Data Report. Main findings: In Q3 2020, EUR 39.8 billion of securitised product was issued in Europe, a decrease of 19.1% from Q2 2020 and a decrease of 1.5% from Q3 2019. Of the EUR 39.8bn issued, EUR 18.8bn was placed, representing 47.2% of issuance, compared to the 28.7% of issuance in Q2 2019 and 77.0% of issuance in Q3 2019 Outstanding volumes (ex-CLOs) decreased slightly to EUR 985.6bn outstanding at the end of Q3 2020, a decrease of 1.4% QoQ and an increase of 0.7% YoY. Credit Quality: In Europe, downgrades outpaced upgrades in Q3 2020, with upgrades as a percentage of rating actions stabilising during Q3 2020, after falling significantly in Q2 2020. Valuation Metrics: European securitisation spreads remain at a record-high in the auto 1-4 Yr market while the spreads observed in the credit card 1-4Yr market have largely normalised to pre-pandemic levels In October 2020, AFME published model wording for EURIBOR new issues of securitisations to help facilitate their transition from EURIBOR to new risk-free rates. This provides an easier mechanism for a future transition from Euribor to an alternative rate (once identified) without the need to undertake a consent solicitation. The model wording is available on the AFME website (here).
Julio Suarez
AFME European High Yield and Leveraged Loan Report: Q3 2020
25 Nov 2020
The Report contains European leveraged finance market trends for the third quarter of 2020, which includes issuance and credit performance figures for the high yield and leveraged loan markets. Key highlights: European leveraged finance issuance (leveraged loans and high yield bonds) accumulated €54.2 billion in proceeds in 3Q’20, a 22.6% decrease from €70.0 billion in 2Q’20 as well as a 30.5% decrease from €78.0 billion in 3Q’19. This quarterly decline was driven mainly by a decrease in leveraged loan issuance. Primary high yield bond issuance totalled €25.2 billion on 62 deals in 3Q’20, a 4.0% increase from €24.2 billion on 48 deals in 2Q’20 and a 19.5% decrease from €31.3 billion on 58 deals in 3Q’19. The proportion of USD-denominated issuance decreased to 13.3% of all issuance in 3Q’20, down from 34.1% in 2Q’20 and 31.1% in 3Q’19. The leading use of proceeds for high yield bonds issuance in 3Q’20 was general corporate with €12.4 billion, which was up 66% from €4.2 billion in 2Q’20 and up from €46.7 billion in 3Q’19. Leveraged loan issuance, including first lien, second lien, and mezzanine financing, totalled €23.5 billion on 44 deals in 3Q’20, down 48.6% from €45.7 billion on 64 deals in 2Q’20 and from €46.7 billion on 76 deals in 3Q’19. LBO/MBO was the largest use of proceeds in 3Q’20 with €9.8 billion, followed by refinancing/repayment of debt and acquisitions, both of which with €5.3 billion or 17.5% of the total. Pricing spreads for institutional loans widened by 5.9 basis points (bps) q-o-q and by 47.1 bps y-o-y. Spreads for pro rata loans widened by 114.8 bps q-o-q and by 83.7 bps y-o-y. Credit quality: As of September 2020, S&P reported the trailing 12-month speculative-grade default rate at 4.3%, an increase from 3.2% in June 2020 and from 2.1% in September 2019. Moody’s reported the trailing 12-month speculative-grade default rate at 3.9% in September 2020, up from 2.8% in June 2020 and from 1.5% in September 2019. Fitch also reported an increase in leverage loan default rates to 5.8% in September 2020 (including c* and cc* rated issuers as if those had already defaulted). 27 bond-related defaults were reported in the third quarter of 2020 by Standard and Poor’s and Moody’s, all in developed market Europe. Missed interest payment and distressed exchange were the most frequent reason for default. According to Moody’s, in 3Q’20 downgrades exceeded upgrades in Europe (36 downgrades to 6 upgrades), a better ratio than 123 downgrades to 5 upgrades in 2Q’20 and 34 downgrades to 1 upgrades in 3Q’19. According to S&P, in 3Q’20 downgrades exceeded upgrades in Europe (46 downgrades to 5 upgrades), a better ratio than 147 downgrades to 2 upgrades in 2Q’20 and a worse ratio than 36 downgrades to 14 upgrades in 3Q’19.
Julio Suarez
AFME Government Bond Data Report Q3 2020
19 Nov 2020
AFME is pleased to circulate itsQ3 2020 Government Bond Data Report. This report provides a comprehensive data source with updated statistics on the Government bond primary and secondary markets in Europe (EU27+UK). Report highlights include: Outstanding amount of green government bonds surpass EUR 60bn, with EUR 10.8 bn issued in green government bonds during Q3 2020, driven by inaugural issuance of the German and Hungarian green bonds, and the reopening of the French, Irish and Belgian green bonds. This represents the highest quarterly issuance of European green government bonds to date. There has been diversification in sovereign ESG issuance in Europe. The EU SURE bond issuance of EUR 17 bn is the first government bond in Europe labelled as social, while Europe’s first sustainable bond was issued in Luxembourg, with both auctions experiencing record levels of over-subscription. Total amount of outstanding ESG bonds (including bonds labelled green, social or sustainable) has reached EUR 80 bn as a result. There has been EUR 985 bn of European (EU+UK) bonds and bills issued during Q3 2020, while issuance has fallen 27.3% compared to the record volumes observed during Q2 2020, it remains above pre-pandemic levels as countries utilise primary market issuance to finance fiscal responses to the impact of Covid-19. European outstanding government debt has underwent a record maturity transformation, with longer maturity profiles a defining feature of debt issuance during Q3 2020. The average bid-cover ratio (demand/amount allocated) stood at 2.22 in Q3 2020, a decrease of 2.3% (QoQ) from Q2 2020 and an increase of 4.2% from Q3 2019 (YoY), suggesting sufficient investor appetite and Central Bank support for the increased volume of bonds and bills. During 3Q20 there were no long-term credit rating changes for European countries. This follows 4 upgrades and 1 downgrade in 1Q20, no upgrades and 2 downgrades in 2Q20, bringing the year-to-date total to 7 upgrades and 4 downgrades (so far in 4Q20 there have been 3 further upgrades and 1 downgrade).
Julio Suarez
AFME Securitisation Data Snapshot: Q3 2020
3 Nov 2020
AFME is pleased to circulate the European Securitisation Data Snapshot for Q3 2020. Key highlights: Q3 2020 European Issuance In Q3 2020, EUR 39.8 bn of securitised product was issued in Europe, a decrease of 19.1% from Q2 2020 (EUR 49.2 bn) and a decrease of 1.5% from Q3 2019 (EUR 40.4 bn) Of this, EUR 18.8 bn was placed, representing 47.2% of the total, compared to EUR 14.1 bn placed in Q2 2020 (representing 28.7% of EUR 49.2 bn) and EUR 31.1 bn placed in Q3 2019 (representing 77.0% of EUR 40.4 bn) In Q3 2020, UK RMBS led placed totals, followed by Pan-European CLOs and French RMBS. UK RMBS increased from EUR 0.8 bn in Q2 2020 to EUR 6.4 bn in Q3 2020 Pan-European CLOs increased from EUR 4.3 bn in Q2 2020 to EUR 5.0 bn in Q3 2020 French RMBS increased from zero in Q2 2020 to EUR 1.6 bn in Q3 2020
Julio Suarez
AFME Prudential Data Report Q2 2020
28 Oct 2020
This report collates information on EU GSIBs’ prudential capital, leverage and liquidity ratios with updated statistics as at 30 June 2020. It also illustrates the recent performance of the debt and contingent convertibles (CoCo) markets and the funding structure for banks in Europe as of October 2020. Among the main findings of this report: European GSIBs reported in 2Q 2020 record CET1, T1 capital and Liquidity Coverage ratios on the back of the build-up of precautionary buffers and regulatory support to facilitate the COVID-19 economic recovery. The weighted average CET1 ratio increased by 40bps during 2Q 2020. Of this, regulatory relief on banks’ capital requirements (i.e. CRR “quick fix” and transitional implementation of IFRS9) had a weighted average impact of 24bps, RWA contraction (ex-regulatory relief) 6 bps, retained earnings 11bps, and FX and others -1bp. The European CoCo market reopened in the second quarter of 2020 with the issuance of 30 AT1 notes since May-20 equivalent to €18.6bn in proceeds. CoCos issued during 2Q20 and 3Q20 have been originated with higher coupon rates compared to those issued in 1Q20 (5.9% in 2Q20 and 5.4% in 3Q20 vs. 4.6% in 1Q20 for fixed rate CoCos). The end of Too Big To Fail (TBTF): Pages 21-25 provide a summary of a preliminary analysis on banks’ borrowing costs during the COVID-19 market distress episode (as a proxy to measure the so-called “implicit subsidy” of large banking institutions). During the March 2020 market stress episode, large systemic European institutions exhibited higher funding costs compared to those for smaller non-systemic institutions. This results illustrate the success of TBTF reforms and progress in reducing the moral hazard posed by the largest financial institutions and the funding advantage for systemic banks compared to smaller institutions. Early 3Q 2020 earnings results have shown continuing progress in building capital and a sharp decline in credit impairments since 2Q 2020. These and other features of the EU G-SIBs Q3 results will be picked up in the next issue of the report which will be published in late November.
Julio Suarez
AFME Government Bond Data Report Q2 2020
8 Oct 2020
AFME is pleased to circulate itsQ2 2020 Government Bond Data Report. This report provides a comprehensive data source with updated statistics on the Government bond primary and secondary markets in Europe (EU27+UK). Report highlights include: Record breaking EUR 1,351 bn of European (EU+UK) bonds and bills issued during Q2 2020, the largest issuance volume of any quarter to date, as countries expand primary market issuance to finance fiscal responses to the impact of Covid-19. The average bid-cover ratio (demand/amount allocated) stood at 2.28 in 2Q20, an increase of 5.4% (QoQ) from 1Q20 and a decrease of 1.5% from 2Q19 (YoY), suggesting sufficient investor appetite and Central Bank support for the increased volume of bonds and bills. Outstanding amount of EU green government bonds surpasses EUR 50bn, after the Dutch, Polish, Belgian and Lithuanian green bonds were reopened, increasing the amount outstanding to EUR 50.6bn. During 2Q20 there were 2 downgrades and 0 long-term credit rating upgrades for European countries (following 4 upgrades and 1 downgrade during Q1 2020), bringing the year to date total to 5 upgrades and 3 downgrades. There has been 1 further upgrade in 2020 to date. All downgrades in 2020 YtD have been linked to the impact of the Covid-19 crisis. During Q2 2020, quarterly traded volume was equal to volume observed in Q2 2017 and Q2 2019, according to TRAX CDS spreads normalise in Italy, Portugal and Spain after peaking in March 2020.
Julio Suarez
AFME Securitisation Data Report Q2 2020
7 Sep 2020
AFME is pleased to circulate its Q2 2020 Securitisation Data Report. Main findings: In Q2 2020, EUR 49.2 billion of securitised product was issued in Europe, an increase of 63.6% from Q1 2020 and a decrease of 18.9% from Q2 2019. Of the EUR 49.2 billion issued, EUR 14.1 billion was placed, representing 28.6% of issuance, compared to the 71.1% of issuance in Q4 2019 and the 45.6% of issuance in Q1 2019. Outstanding volumes (ex-CLOs) increased slightly to EUR 999.3 billion outstanding at the end of Q2 2020, an increase of 0.9% QoQ and 0.3% YoY. Credit Quality: In Europe, downgrades outpaced upgrades in Q2 2020, with downgrades concentrated in CMBS and RMBS. Valuation Metrics: European securitisation spreads tightened during Q2 2020, although continue above the levels observed before the COVID-19 outbreak. On 15 July AFME submitted its response to the EC consultation on a Renewed Sustainable Finance Strategy which includes a section on green securitisation. In our response we stressed the role securitisation can play in financing sustainable projects and the need to research further the possibility to introduce a differentiated capital treatment for securitisations compliant with ESG principles.
Julio Suarez
AFME European High Yield and Leveraged Loan Report: Q2 2020
25 Aug 2020
The Report contains European leveraged finance market trends for the second quarter of 2020, which includes issuance and credit performance figures for the high yield and leveraged loan markets. Key highlights: European leveraged finance issuance (leveraged loans and high yield bonds) accumulated €70.0 billion in proceeds in 2Q’20, a 25.9% decrease from €94.4 billion in 1Q’20 but an increase from €63.4 billion in 2Q’19. This quarterly decline was driven mainly by a decrease in leveraged loan issuance. Primary high yield bond issuance totaled €24.2 billion on 48 deals in 2Q’20, a 16.9% decrease from €29.1 billion on 71 deals in 1Q’20 and a 17.0% decrease from €29.2 billion on 71 deals in 2Q’19. The proportion of USD-denominated issuance increased to 34.1% of all issuance in 2Q’20, up from 24.2% in 1Q’20 and from 28.6% in 2Q’19. The leading use of proceeds for high yield bonds issuance in 2Q’20 was repayment/refinancing of debt with €15.0 billion, which was up 40% from €10.7 billion in 1Q’20 and up from €7.4 billion in 2Q’19. Leveraged loan issuance, including first lien, second lien, and mezzanine financing, totaled €45.7 billion on 64 deals in 2Q’20, down 29.9% from €65.2 billion on 83 deals in 1Q’20 but a 33.8% increase from €34.2 billion on 76 deals in 1Q’20 General corporate purposes were the largest use of proceeds in 2Q’20 with €18.9 billion, followed by refinancing/repayment of debt with €11.5 billion, and LBO/MBO with €6.9 billion or 15.1% of the total. Pricing spreads for institutional loans widened by 76 basis points (bps) q-o-q and by 1 bps y-o-y. Spreads for pro rata loans tightened by 3 bps q-o-q and by 87 bps y-o-y. Credit quality: As of June 2020, S&P reported the trailing 12-month speculative-grade default rate at 3.4%, an increase from 2.4% in March 2020 and from 2.3% in June 2019. Moody’s reported the trailing 12-month speculative-grade default rate at 2.8% in June 2020, up from 1.9% in March 2020 and from 1.2% in June 2019. Fitch also reported an increase in leverage loan default rates to 6.4% in June 2020 (including c* and cc* rated issuers as if those had already defaulted). 17 bond-related defaults were reported in the second quarter of 2020 by Standard and Poor’s and Moody’s, 15 in developed market Europe and two in emerging market Europe. Missed interest payment was the most frequent reason for default. According to Moody’s, in 2Q’20 downgrades exceeded upgrades in Europe (123 downgrades to 5 upgrades), a worse ratio than 78 downgrades to 4 upgrades in 1Q’20 and than 40 downgrades to 16 upgrades in 2Q’19. S&P also reported a deterioration in the downgrades-upgrades ratio. According to S&P, in 2Q’20 downgrades exceeded upgrades in Europe (152 downgrades to 3 upgrades), a worse ratio than 97 downgrades to 9 upgrades in 1Q’20 and than 25 downgrades to 28 upgrades in 2Q’19.
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