Three European banks join rush to issue capital bonds

At least three European banks plan to issue contingent capital bonds this week, potentially going head-to-head on the same day in what would provide the toughest test of investor appetite yet for the high-risk instruments.

Nationwide Building Society, Santander and Danske Bank are all set to emerge with debut additional tier-1 bonds on Thursday, getting in ahead of a host of other European banks that are scrambling to get regulatory and tax approval for similar offerings.

"[This] week could be the busiest week we've seen so far," said Robert Montague, a senior investment analyst at ECM Asset Management. "All three banks are roadshowing, so theoretically they could all emerge on the same day."

Non-dilutive equity-like products such as additional tier-1 bonds are key instruments for banks to raise cheap capital to fortify their balance sheets and improve their leverage ratios. Under the Basel III framework, banks can raise 1.5 per cent of their 6 per cent tier-1 capital ratio in this form.

The nascent additional tier-1 sector's biggest test so far was in December last year when Credit Suisse and Barclays both printed deals during the same week, but the former was in US dollars, by far the deepest capital market.

This week's supply should feature a debut in pound and issuance in euros, but investors say they are prepared for greater supply as long as it is priced and sized appropriately.