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Hybrid: Insurance and banks boost Q1 hybrid supply

Excellent market conditions, M&A, special situations and heightened insurance activity drove record subordinated supply in the first quarter; more deals are in the pipeline.

Subordinated bank and insurance paper issuance in the first three months of the year has broken all previous records. According to Dealogic, by the middle of March volumes for all internationally marketed subordinated bonds came to $43 billion, breaking the record for first-quarter supply established in 2005.

The significance of this new record become clearer once the fact that the 2005 first-quarter total of $41.8 billion was one-third higher than 2004’s is taken on board [see graph below]. There are various explanations for the phenomenal supply.

“March is generally a busy period, because financial companies are generally keen to take advantage of liquidity once out of their financial black-out period,” says Richard Boath, head of the financial institutions group at Barclays Capital.

“Looking at the drivers for issuance in 2006 compared with 2005 – isn’t it more of the same?” asks David Marks, head of FIG debt capital markets at JPMorgan. Marks points to the fact that spreads remain at historically tight levels and there is continued strong investor sentiment for financials. Banks and insurance treasurers are loth to turn down cheap capital.


“We have had a bunch of stuff, much of which is M&A related,” says Boath.

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