2012.07.03 18:15:03 U.S. Auto Sales Climb in June

-- Banks race to sell senior unsecured bonds as sentiment picks up
ahead of summer slowdown

-- Borrowers encouraged by EU and ECB policy support

-- Overall supply of senior unsecured debt likely to fall as banks
continue to trim balance sheets

European banks with access to the bond market are rushing to sell
unsecured debt as improved sentiment after last week's European Union
summit and recent policy decisions by the region's central bank fuel
favorable funding conditions ahead of the summer lull.

Banks have issued 7.5 billion euros ($9.46 billion) of senior
unsecured bonds so far this month compared with just EUR10 billion for
the whole of the second quarter, according to Societe Generale data.

Sentiment picked up after European leaders agreed last week to
centralize oversight of the region's banking industry and to allow the
euro zone's bailout funds to directly recapitalize struggling banks.
That followed the European Central Bank's decision to ease its
collateral standards, boosting liquidity available to euro-area banks.

With this year's funding needs largely taken care of by the ECB's
long-term refinancing operations in December and February, banks are
taking advantage of the improved backdrop to manage their upcoming
debt maturities.

"[Banks are] being opportunistic and getting funding done when there
is a window rather than sitting around and trying to be too smart and
waiting for marginally tighter spreads when there's the summer coming
up and the possibility of more volatility," said Jeroen van den Broek,
a credit strategist at ING Bank.

Market participants are also encouraged by the EU pushing back its
bank bail-in plans--designed to shift the cost of future bank rescues
from taxpayers to investors--until January 2018, said Alberto Gallo,
head of European macro credit research at Royal Bank of Scotland. That
move is boosting demand for shorter-dated unsecured bonds.

Italian lender Intesa Sanpaolo SpA (ISNPY) was one of three banks
issuing senior unsecured debt Tuesday, pricing a EUR1 billion
three-year bond at 410 basis points over midswaps. That is
significantly more than it paid in February when it sold the same
amount of five-year paper at 355 basis points over midswaps.

"When an issuer decides to tap the senior unsecured market at these
sort of levels, it's more about proving there is access to the market
rather than it being about attractive funding," said ING's Mr. van den
Broek.

Senior unsecured bonds are a type of debt that has traditionally been
the main source of long-term funding for banks, but the market has
contracted sharply since the euro-zone debt crisis erupted, sending
borrowing costs higher and shutting some issuers out altogether.

Despite the latest burst of issuance, overall supply is likely to fall
as banks look to cut the amount of debt on their balance sheets, Mr.
Gallo from RBS said.

"Even if you have more deals it doesn't mean the overall supply of
senior is going up. There is less issuance of new deals compared to
the ones that are maturing," he said.

Write to Ben Edwards at ben.edwards@dowjones.com


(END) Dow Jones Newswires

July 03, 2012 12:25 ET (16:25 GMT)