Regional banks are poised to return to the debt markets in the biggest wave since June to meet new capital requirements in response to the failures of Silicon Valley Bank and Signature Bank.
If this week’s proposals from the Federal Deposit Insurance Corp. and the Federal Reserve are any indication, larger regional banks will have to issue more long-term debt to protect against losses during periods of turmoil. They will probably need to sell some $40.5 billion of holding-company debt to fulfill the new rules, according to CreditSights, and the first deals are likely to come in the near future, even if lenders may have years to meet the new rules.
“Mid-size regionals that have been a bit shy in terms of tapping the debt markets will need to start coming,” Bloomberg Intelligence credit analyst Arnold Kakuda said.Under the new rules, banks with $100 billion of assets or more will need to issue enough long-term debt to cover capital losses in times of severe stress, requirements that previously only applied to bigger banks.
Risk premiums for regional banks in particular are now much less wide when compared with the average blue chip firm than they were in April, when bank failures pushed spreads out. Another positive for the banks: the average borrowing costs for high-grade firms broadly eased this week after yields fell.
Embattled Chinese developer Country Garden Holdings Co. warned it may default on its debt after posting a record first-half loss. Creditors in a maturing yuan bond, however, voted late Friday to allow payments to be stretched into 2026, providing some respite. UBS Group AG’s CEO said the bank is “looking” at markets for AT1 bonds, while Intesa Sanpaolo SpA is offering to buy back an AT1 bond early and plans to replace it with a new issue.
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