Santander UK breaks Europe's post-Brexit financial drought

By Alice Gledhill and Helene Durand

LONDON, July 1 (IFR) - Santander UK (LSE: 44RS.L - news) is marketing a sterling covered floater, the first financial deal in the European market since Britain's shock vote to leave the European Union last Friday.

UK credits were hit hard after the referendum as markets crashed and sterling plummeted to a 31-year low, scuppering issuance plans both in the European and US markets.

Lloyds Banking Group (Other OTC: LLOBF - news) , however, stunned markets on Thursday after pulling in more than US$7bn of demand for a US$1bn five-year senior in the US market, paving the way for Santander on Friday.

It (Other OTC: ITGL - news) is the first bank deal executed in Europe since June 15.

"This proves market access and that the sector isn't stressed or distressed," said a banker on the Santander trade.

"This won't open the door to someone doing AT1 but it's still a deal. We're not in a Lehman situation and banks are extremely solvent and liquid."

Guidance for the £500m Jul 2019 FRN, rated Aaa/AAA/AAA, came at three-month Libor plus 48bp area - in line with where Nationwide Building Society (LSE: CCDS.L - news) priced the last UK floater, a £750m three-year in April.

A lead said it was difficult to calculate relative value since this type of deal tends to be bought by banks in large clips.

"It's basically down to where people want to buy. You can't be too cheeky with pricing."

High cash balances on the buy side have been a key factor in helping the market to reopen, and two corporates have already issued sterling bonds this week. Short-dated covereds are particularly attractive to bank treasuries.

"There are a lot of buyers out there and a great degree of confidence in the sector. A three-year covered is perfect for banks," he said.

Santander is sole lead. (Reporting by Alice Gledhill, Helene Durand, Editing by Julian Baker)