Banco BPM enters high-yield bond market with €300 million AT1 issue

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By Robert Fofana

Banco BPM enters high-yield bond market with €300 million AT1 issue
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MILAN – Italian lender Banco BPM has announced its entry into the high-risk, euro-denominated Additional Tier 1 (AT1) bond market, with plans to raise €300 million. The move comes as part of the bank’s strategy to enhance its capital base. The bonds, carrying a yield of approximately 10%, will include a call option that can be exercised after five years.

The announcement today marks a significant step for Banco BPM, as it joins other major banks that have tapped into the demand for AT1 bonds. Earlier in November, UBS Group AG (SIX:) and Barclays Plc witnessed substantial interest in their AT1 offerings, with the volume of orders reaching ten times the amount they raised, totaling $3.5 billion and $1.75 billion respectively.

Banco BPM’s foray follows the issuance by Erste Group Bank AG (OTC:) in September 2023, which successfully raised €500 million at a coupon rate of 8.5%. AT1 bonds have become an essential instrument for banks to strengthen their capital structures since being introduced after the global financial crisis. They are designed to absorb losses by converting into equity or having their value written down in case a bank’s capital falls below a certain threshold, thereby providing a cushion against financial distress.

Investors have shown a strong appetite for such high-yield investment opportunities amidst a backdrop of low-interest rates across Europe. Banco BPM’s offering is expected to attract significant investor interest given the recent successful issuances in this asset class.

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