Two get Yankee CoCo ball rolling

* HSBC, Standard Chartered (HKSE: 2888.HK - news) find strong demand for AT1 trades

* Credit Suisse (LSE: 0QP5.L - news) debuts holdco TLAC debt

* All three trade tighter in aftermarket

By Danielle Robinson

NEW YORK, March 27 (IFR) - Yankee European bank CoCos and bond issuance to meet total loss absorbing capital regulations finally got going in the US dollar market this week.

HSBC and Standard Chartered brought Additional Tier 1 debt while Credit Suisse the first debt offering from a holding company entity of a European bank outside of the UK.

All three met an overwhelming response, despite the rest of the market groaning under the weight of record issuance in March.

Credit Suisse received more than US$10bn of orders for its US$4bn issue of five and 10-year holdco notes, and HSBC US$16bn for its US$2.25bn 6.375% perpetual non-call 10-year Additional Tier 1 CoCo.

Both were dwarfed by the US$22bn orders from 550 investors for Standard Chartered's US$2bn 6.5% perp non-call five-year AT1.

"We are delighted with the transaction," said Rupert Mingay, group treasurer for Standard Chartered. "It attracted significant global demand from high-quality investors. We are building towards US$6bn of AT1 capital by 2019 as part of a CRD IV capital-efficient structure and this is a major step towards that."

Both deals were outstanding performers, with HSBC bid at 102 and Standard Chartered at 100.75 on Thursday. Although US$15bn of Standard Chartered's book came from Asia, a good US$7bn of European and US demand is not to be sneezed at.

YANKEE SURGE?

US underwriters hope the size of the two deals and the demand they showed for the product will help turn the attention back on to the Yankee market for AT1 issuance.

"I think other [European banks] that have sizeable AT1 needs and with global businesses will look at the demand dynamics of these two trades and come to the Yankee market," said one DCM origination banker at a major US bond house.

All year, US bankers have watched potential AT1 underwriting business go to the Reg S-only dollar bond market, which excludes domestic US investors.

Smaller banks with minimal AT1 issuance needs such as Swedbank (LSE: 0H6T.L - news) and DNB (LSE: 0O84.L - news) bypassed the Yankee market earlier in the year because the Reg S market offered attractive dollar pricing without the tedium of US documentation and disclosure required for SEC registration and the 144A global bond format.

Some say that is a trend that is unlikely to change for the smaller Continental European banks with small AT1 needs and little in the way of a global business.

But for the big global banks with business in the US and with capital needs that require larger deals and investor diversification it will pay to come to the Yankee market, say bankers.

"The fact remains that you can save something like 25bp by coming to the Yankee market rather than the Reg S-only market - it's what accessing a truly global investor base will get you," said one syndicate head in charge of Yankee financials issuance.

Banks in jurisdictions that give CoCos debt rather than equity accounting treatment will also look at the basis swap levels and see that names such as HSBC and Standard Chartered can save up to 50bp by issuing in dollars rather than euros at the moment.

European banks have about 125bn of AT1 needs to fill by the end of 2018, some 45% or around US$60bn of which could end up in dollars, according to one US bank's internal estimates.

"It's safe to assume at least 50%-60% of that [potential dollar amount] is going to be in global format," said one banker.

That would equate to about US$10bn to US$12bn each year over the next three years, if those estimates pan out, and compares with US$17.5bn of Yankee AT1s in 2014.

LESS CONFIDENT

US bankers are less confident that there will be a flood of similar holdco deals from non-UK European banks, despite the clear demand Credit Suisse's inaugural holdco issue of US$1.5bn of five and US$2.5bn of 10-year notes attracted.

The UK and Swiss banks are part of a select group of banks in Europe with holdco structures and may end up being a minority, if newly proposed German laws are enacted and then adopted by other countries.

Germany has drafted legislation that would mean senior bondholders would face losses in resolution before unguaranteed depositors and counterparties.

"This would make it easier to resolve banks in Germany and could become a blueprint for addressing TLAC requirements for other global systemically important banks, without the burden of setting up holding companies," said Fitch in a report released in the past week.

A smaller-than-expected onslaught of TLAC issuance would be a welcome relief for US investors overweight US bank debt.

Based on current regulatory proposals, the expected need for TLAC for the US banks alone could be as much as US$375bn between now and 2019.

"There will be a huge issuance need to meet these criteria," said Jason Shoup, investment-grade credit strategist at Citigroup (NYSE: C - news) .

"There is a relatively good fundamental improvement story for the US banks, but we don't think that necessarily matters. We think it is more about supply to come as far as the performance of the debt is concerned. We have a lot of clients with overweight positions in financials and banks and we see TLAC as an opportunity to second-guess that trade." (Reporting by Danielle Robinson, Editing by Matthew Davies, Richard Stanbury)