Greece offers proof of NatWest Markets comeback

From left: James Marriott, Chris Agathangelou, Harsh Shah, Konstantinos Diamantopoulos, Antonis Ntatzopoulos

As investors grow more comfortable with the direction of travel in Greece's financial sector, its banks have been regaining access to international debt capital markets (DCM). Over the past six months, three of Greece’s big four financial institutions have issued covered bonds, and NatWest Markets has been, uniquely, a bookrunner on each deal.

The banks were locked out of capital and interbank markets in 2011 as the euro crisis overtook Greece and other weaker members of the EU. Since then they have undergone a brutal process of deleveraging, together with successive rounds of recapitalisation.

They enjoyed a short-lived return to the capital markets in 2014, when all four were able to sell senior bonds, but it did not last. Apart from that brief interlude, they have had to rely on funding via bail-out programmes, the third of which is now approaching its end.

A core customer 

NatWest Markets, Royal Bank of Scotland's renamed investment banking business, regards Greek banks as part of its core financial institution customer base. It has been providing them with secured funding in the shape of repo lines over the past 18 months.

"Two years ago we knew there was a clear aim for the banks to come back to the market," says Harsh Shah, NatWest Markets’ head of financial institution origination and solutions. Exactly when would be a matter of judgement, but during 2017 it became clear that the moment was getting closer. "The market was seeing more deals from peripheral [EU] issuers," says Mr Shah.  

There was another helpful development in July 2017, when the Hellenic Republic priced a five-year €3bn transaction, its first in the international market for three years. That same month National Bank of Greece (NBG), the national champion bank, organised a non-deal roadshow to pave the way for a DCM transaction of its own.

"It met with more than 100 investors to provide a credit update," says Konstantinos Diamantopoulos, a NatWest Markets managing director in financial institution origination and solutions. "While it was not marketing a transaction, road shows are very important for non-frequent borrowers or those who have lost access."

A comfortable plan 

The centrepiece of the roadshow was a two-year strategic funding plan, aimed at building a healthy liability structure and regaining public markets access in a sustainable way. The plan gave particular comfort to investors, according to Chris Agathangelou, NatWest Markets’ head of financial institution syndicate. "There was a lot of reverse interest in seeing a deal from a Greek bank," he says. "But it was important not to come too early (and pay too much) or too late."

A secured format was deemed the most appropriate way to kick off the new funding strategy, with a short tenor, not least to keep costs – already at a significant premium to interbank lending – within reason.

Sentiment at the 2017 ECBC Global Covered Bond Congress in Barcelona during September confirmed that the market was indeed ready for such a transaction. Shortly thereafter, a four-day pan-European deal-specific NBG roadshow took in London, Milan, Frankfurt, Munich and Athens.

Given the positive reception by investors, a deal was then announced for a three-year conditional pass-through (CPT) covered bond, NBG's – and indeed Greece's – first ever. Joint leads were Bank of America Merrill Lynch, Deutsche Bank, Goldman Sachs, HSBC, NatWest Markets and UBS.

Setting a benchmark 

Initial price thoughts were around the 3.25% area, 50 basis points (bps) inside the Greek sovereign curve. As orders came in, guidance was tightened to 3% plus or minus 10bps. With a final order book of more than €1.9bn from 110 accounts, the size was set at €750m and the price at 2.9%, 85bps inside the sovereign.

Pricing through the 3% mark was a positive achievement, the bankers say. And distribution by investor type was also noteworthy, according to Mr Agathangelou. "There was significant support from UK real money, including some of the top real money accounts," he says.

That, combined with NBG's primus inter pares status among Greek institutions, meant that the deal became a benchmark for other banks, according to Mr Diamantopoulos. Certainly, Eurobank was quick to announce a CPT covered bond transaction of its own, modelled closely on the NBG offering.

Eurobank and Alpha response 

This too was a three-year deal, with a roadshow that covered the same geographies as NBG had done. Like the previous transaction, it was launched with initial price thoughts of 3.25%, with guidance later tightened to 3% plus or minus 2bps. The order book was in excess of €1.2bn with 89 accounts. The price of the €500m transaction was set at 2.98%.

"There was slightly more European support for this deal, with more interest from Germany, Switzerland and Austria," says Mr Agathangelou. "The NBG transaction gave comfort and suggested that Greek banks were worth looking at." Bookrunners on the Eurobank issue were Barclays, Commerzbank, Goldman Sachs, JPMorgan, NatWest Markets and UBS.

NBG and Eurobank both transacted in October 2017. The third Greek CPT covered bond to come to market was from Alpha Bank, the country's second largest lender, which bided its time until February. This differed from its predecessors in various ways.

For one, it had a soft bullet rather than a CPT structure. "The European Central Bank [ECB] changed its criteria for buying pass-through transactions as of February 2018," says Antonis Ntatzopoulos of NatWest Markets’ financial institution origination and solutions.

While the soft bullet structure was designed to appeal to the more traditional covered bond investor, the bonds are also eligible for purchase by the ECB via its third covered bond purchase programme.

The leads on the Alpha Bank deal were Barclays, Citi, Commerzbank, JPMorgan and NatWest Markets – making NatWest Markets the only investment bank to win mandates for all three Greek covered bond issues. While the previous deals had been executed intraday, Alpha chose a one-week execution strategy. It also opted for a five-year rather than a three-year maturity; the longer tenor being favoured by traditional covered bond investors.

The roadshow for Alpha Bank was slightly shorter, running to two-and-a-half days, but with two teams – one concentrated on London, while the other focused on Milan, Frankfurt and Greek accounts.

The deal went out with price thoughts in the 3% area and the order book grew very quickly. Guidance for the €500m no-grow transaction was set at 2.75% to 2.875%. With a final order book of €2.3bn – nearly five times over-subscribed – the price was set at the tight end of guidance, at 2.75%. This was Alpha Bank's largest ever order book and one of the largest corporate order books in Greece since 2009.

"There were 167 investors," says Mr Agathangelou, "and 93.5% of demand was from international institutional investors."

Market return? 

All three issuers have strategic funding plans, embracing unsecured as well as secured funding, including capital securities. So it is reasonable to expect them to come back to market in search of unsecured borrowing, possibly later in 2018. It is likely that the next round of borrowing will involve instruments to satisfy their obligations under Minimum Requirement for Own Funds and Eligible Liabilities, or MREL.

"We could see the first senior trade after the IFRS9 and stress-test results, and once there is more clarity on the future shape of any assistance programmes," says Mr Diamantopoulos.

Mr Agathangelou agrees that investor sentiment favours further issuance. "There is demand now for Greek securities all the way through the capital stack," he says. "But it is important to get the timing right."

Having been laid low by restructuring and re-emphasis at RBS, NatWest Markets has been clawing its way back up the DCM rankings. In year-to-date rankings as of early March, it placed sixth as manager in euro and sterling issuance for Europe, the Middle East and Africa financial institutions, ahead of houses such as Credit Suisse and HSBC. "This is a strong increase in market share versus where the franchise sat two years ago," says James Marriott, the bank’s head of DCM financial institutions.

This year, he adds, the bank has been active as a bookrunner in euro and sterling financial institution groups DCM across six jurisdictions – Canada, France, Greece, the Netherlands, Spain and UK – across both capital and funding.