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Bank funding market: Pimco's pricing power

UniCredit’s €3 billion deal is a harsh demonstration of market dynamics.

When Italian lender UniCredit sold an entire €3 billion five-year senior non-preferred bond with a 7.83% coupon to US investment management firm Pimco in late November it was a demonstration of far more than the brutal impact that the country’s political turmoil has had on Italian banks’ cost of borrowing.

It showed the huge competitive advantage that today’s enormous asset managers enjoy – and just how much they can charge for access to funding.

Having been locked out of the markets for most of the year, UniCredit was clearly in a tight spot, and still only around a third of the way through its 2018 funding plan by October.

The bank has history with Pimco, which together with Fortress bought its €17.7 billion NPL securitization in late 2016. Pimco is also widely believed to be the buyer of a €500 million additional tier-1 deal from UniCredit at the same time, which also came with an eyewatering coupon of 9.25%.

So, when news emerged that the bank had sold the whole €3 billion issue to one buyer, there was really only one candidate that it could be.