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FIG DCM issuance gets complicated as rising NPLs and funding costs hit confidence

Global Pipeline
Photo: iStock

Issuing bank debt used to be easy. But with many banks now crowding through the same narrow issuance windows, even high-quality issuers have barely covered the books on some deals. And as non-performing loans look set to rise, investors are worrying that the boon from higher rates won’t last.

Rising rates boost bank earnings. Bank executives told investors through years of quantitative easing and negative rates that when rates turned round and went up again, everyone would finally see just how much profit banks can make.

But now that central banks are hiking in 75 basis point leaps, investors don’t seem to like it much, especially in Europe. This is despite the fact that net interest income has shown double-digit growth in 2022 and banks easily beat consensus earnings estimates for the second quarter, pushing some governments towards windfall taxes.

On September 5, the Euro Stoxx Bank Index had fallen 24% year to date, and was 33% down from its peak back in February just before Russia invaded Ukraine.

Russia’s announcement at the start of September that it will not reopen the Nord Stream 1 gas pipeline after fixing a supposed oil leak heightened anxiety in already febrile financial markets.

Deutsche Bank economists’ new baseline is for a recession next year in Germany that cuts GDP by between 3% and 4%.

If we go into a prolonged slowdown, there will be many credits that will not be able to roll over their financing
Neil Devaney, Weil, Gotshal & Manges

As sky-high energy prices impose their own tightening of financial conditions and politicians prepare for energy rationing, fear of rising non-performing loans (NPLs) is now surpassing hopes for wider net interest margins.


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Peter Lee head.jpg
Editorial director
Peter Lee is editorial director. He joined Euromoney straight from Oxford University in 1985, and has written about banking and capital markets ever since, being appointed editor in 1999. He became editorial director of Euromoney in May 2005.