Investor Alert

Oct. 27, 2009, 1:10 p.m. EDT

European Banks Look to Floating-Rate Notes

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By Michael Wilson

LONDON -- European banks are capitalizing on investor appetite for floating-rate notes to cut the cost of selling new debt.

French public finance and retail bank Dexia Credit Local became the second bank within a week to sell bonds with variable interest rates, placing a new one billion euros ($1.48 billion) deal with investors Monday at a spread of 95 basis points over the three-month Euro Interbank Offered Rate.

"Dexia opportunistically took advantage of the current investor appetite for FRN paper by printing at a competitive spread compared to the all-in cost of a new government-guaranteed bond issue," one lead manager on the deal said.

The supply of floating-rate bonds has been sparse so far this year. In fact, Sweden's SEB /zigman2/quotes/210398461/delayed FR:SK +0.80% , Finland's Pohjola Bank and U.K.-based Barclays /zigman2/quotes/206581728/composite BCS -0.64% PLC have been the only issuers in the FRN market this year, bringing the total issuance to a meager 3.25 billion euros.

The Barclays trade, which priced Oct. 20 at a spread of 82 basis points over three-month Euribor, accounted for two billion euros of that amount.

Analysts estimated that issuing a FRN shaved 20 to 25 basis points off the price Barclays would have paid on a fixed-rate bond.

But Barclays, which was the sole lead manager on the deal, said investor diversification was also an important consideration for the deal and that, while some of the longer-dated bonds sold earlier this year were bought by asset managers, pension funds and insurance companies, the new FRN was aimed at money-market and bank funds.

"The Barclays trade underlines how receptive the FRN market is at the moment," said Mark Geller, head of financial institutions syndicate at Barclays Capital, adding that recently, the floating-rate deals have tended to be more modest in size than fixed-rate ones.

"Its clear that large size is also potentially available in floating too," he said.

Write to Michael Wilson at michael.wilson@dowjones.com

FR : France: Euronext Paris
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