The massive purchase of 'Cocos' rules out capital problems in banking

The stock market crash led by the Spanish banks this Wednesday was motivated by a leak from the ECB, according to financial sources, on higher capital requirements for the sector. It could occur in view of the review carried out by the European Central Bank (ECB) at the end of each year – with the exception of Bankinter, which is biannual – and which is known as PRES (Supervisory Review and Evaluation Process).

Specifically, the two entities mentioned with special emphasis were the two Catalans, CaixaBank -after its merger with Bankia- and Sabadell Bank. But yesterday the bond market came to deny that there is any fear on the part of investors about an increase in the requirements in one of the five components that determine the common capital ratio, which is known as Pillar 2R relative to risks.

Purchases spread throughout the market for CoCos banking, as they have been doing throughout the week. This led to falls in the profitability of the perpetual debt issues of Spanish entities and to an average price increase of 0.52%, as collected Bloomberg. Among the four issues carried out throughout 2021, the rise in the price of the bonds was higher: on average, 0.7%.

In the specific case of Sabadell the CoCo of 500 million euros that it issued in March of this year saw its price rise by 0.79% in four sessions, with a return of 4.387% compared to the initial 5.75%.

CaixaBank, which issued a green bond in September with a 3.65% coupon – the lowest cost of financing in the whole of southern Europe, which Santander later equaled – has also seen profitability drop. In four sessions the price of this CoCo It rises by 0.8%, while another previous issuance – from 2018 for an amount of 1,250 million euros – shoots up 0.9% in four sessions, and its profitability goes to 3.58%.

The confidence of strong hands of the market – those that buy perpetual debt – is the reflection of a sector that peca, if anything, excess capital over what Frankfurt demands. “We are talking about very small changes [de 10 20 puntos bsicos]”on the minimum capital requested by the authorities.” Today this requirement is between 8% and 9.5% for all Spanish entities. If these levels are compared with the capital ratios fully loaded, which are more restrictive [que los phase in], these are above 11%, which leads you to have a minimum capital margin of more than 300 basis points “, argue from Renta 4. Among the listed entities, at the end of the first semester, their first level capital (fully loaded) is located, on average, about 12.5%.

The most advantageous is BBVA, with 14.2%, over a minimum capital requirement of 8.6. This leaves a margin of 5.6 points or more than 17,000 million euros, pending the presentation of third quarter results scheduled for the next two weeks. Unicaja, whose CET1 FL It reached 17.7% at the end of June, it has not been included in the absence of a proforma figure together with Liberbank.

CaixaBank will be the only entity that could escape a revision (up or down) of the minimum capital requirements. The entity already communicated on June 23 the increase of 15 basis points in the requirements for Pillar 2R, up to 1.65%, which left the CET1 FL minimum required at 8.19%. It is valid until the end of 2022, according to sources from the entity. Closed the first semester 431 basis points above.

“We believe that any increase in the demands of the Pillar 2R It should be manageable by Sabadell due to a margin of 350 basis points “on the required capital, they point out from Citi, which is at 8.5%. The entity closed June with an ordinary capital of 12%.

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