Santander's UK operation successfully launched its euro unsecured bond at a time when other banks were looking at covered bonds.

Abbey National converted from a building society to a bank in 1989. Fifteen years later, it was acquired by Spanish banking group Santander and the Abbey name disappeared from the UK high street. But the brand has not disappeared completely: Abbey National Treasury Services (ANTS) remains the wholesale funding arm for Santander UK.

“It’s a legacy issue. When Abbey National was demutualised in 1989, it was viewed that certain treasury operations had to be carried out in a separate legal entity so Abbey National Treasury Services was set up as a subsidiary. Today, it’s a fully owned subsidiary of Santander UK plc and cross-guarantees are in place but the name remains the same,” says Tom Ranger, director of funding at Santander UK.

In the aftermath of the financial crisis, ANTS focused on covered bonds and secured funding, in common with most bank treasury arms. Recently however, Mr Ranger and his team have shifted their focus.

“Over the past two or three years, unsecured markets have become more attractive to issuers as investors have stepped back into that space. So in 2012, the majority of our issuance was secured. This year, the majority will be unsecured,” says Mr Ranger.

Into the euro

In January of this year, ANTS launched a €1bn unsecured transaction. Since then it has tapped the unsecured market again in both dollars and sterling. But Mr Ranger was keen to return to the euro market once more before the year-end.

“We wanted to do a senior benchmark transaction in euros before the end of the year so we were monitoring the market closely. We noticed that European banks were focusing on the covered bond space, probably because of the new European Central Bank purchasing scheme, so we thought there would be good demand for an unsecured transaction,” he says.

Santander UK’s third-quarter results came out on November 4 and ANTS was in a blackout period for about two weeks beforehand. Once the results were out, however, sentiment seemed benign and ANTS decided to act.

“We had decided internally that we would issue a transaction as soon as there was a window. We hadn’t discussed this with any of our bookrunners but we have a group of banks that we work with very well so it was pretty easy to mobilise some of them for this deal,” says Mr Ranger.

The chosen bookrunners were Credit Suisse, Santander, Société Générale and UBS.

“They had a good track record in the euro markets and they’d shown us some good ideas and opportunities in recent months,” says Mr Ranger.

At 7.30 on the morning of November 5, a call was held to make sure the market would be receptive to a large euro transaction. Then, at 8.15, the deal was announced – a €1bn issue, maturing in January 2020.

“We wanted a deal that was slightly longer than five years so that we would have a five-year benchmark in the market early next year,” explains Mr Ranger.

Investors were given initial price guidance of 55 basis points over mid-swaps and response was enthusiastic. By 10 o’clock, the book had reached €1.2bn so pricing was refined to between 51 and 53 over mid-swaps. The book continued to build and at 10.35 it had reached €2bn.

“We closed the book at that time and set the price at 51 basis points over [mid-swaps],” says Mr Ranger.

Investor relations

As demand significantly outstripped supply, the allocation process required sensitivity and market knowledge.

“We are heavily involved in the allocation process. We are very close to our investors and we believe it is vital to treat them fairly. First we go through the book looking for strategically important and buy-and-hold investors. Then we top and tail the book and allocate accordingly,” says Mr Ranger.

Although the deal did not involve a specific investor roadshow, the ANTS team spends a lot of time on the road keeping investors informed about Santander UK and the wider UK economy.

“It is an essential part of our role to keep investors updated on conditions within the bank, on our general funding requirements and on the broader UK environment,” says Mr Ranger.

The process clearly works. The €1bn benchmark tightened in the secondary market, showing that the transaction had been well priced and investor appetite for ANTS remained strong.

“We were very pleased with the way it went. We’ve had very good feedback, which is important as it suggests investors will be receptive to us when we next tap the market. Obviously, there are factors outside our control. We are part of a global economy and we cannot influence market conditions, but we work hard on the areas that we can control such as deal size and pricing,” says Mr Ranger. 


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