The key chart
Trends in monthly flows (EUR bn) of bank issuance of debt securities (Source: ECB; CMMP)
Happier times ahead for FIG DCM bankers as European banks reduce their reliance on public sector sources of funding…
So what is happening?
European banks’ reliance on public sector sources of funding is falling as TLTRO funds reach maturity. Banks plan to issue more debt to (1) compensate for the expected decline in central bank funding and (2) to comply with minimum requirements for own funds and eligible liabilities (MREL).
What does the data say?
From the latest ECB “Monetary developments in the euro area, July 2023” release we can see positive monthly flows of debt securities with a maturity of over twelve month (counterparts to M3) in every month since October 2022. Cumulative 12-month flows turning positive in December 2022 and reached €198bn in the 12 months to July 2023, their highest level since October 2007 (see chart above).
Happier times for FIG DCM bankers…
The increasingly “commoditised” FIG DCM space can be a rather soulless place for issuers and bankers alike (in my experience). The good news is that issuance is recovering and is expected to remain positive in 2023-24 (see also the European Bank Authority’s annual funding plans report, July 2023). Happier times….