Shock the European bond markets! Santander has refused to prepay 1.5 billion euros in bonds

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Spain’s santander has decided not to prepay 1.5 billion euros in bonds. That beat investors’ expectations and hit Europe’s $200bn bank debt market.

Bank capital bond issuance has boomed since the financial crisis as European Banks have sought to build up capital buffers without increasing equity stakes. At the same time, the search for yield has left fixed-income investors exposed to the additional risk posed by bank bonds.

The bonds that santander decided not to prepay this time are AT1 class bonds. Ten European Banks, including santander, have a chance to make AT1 payments this year.

AT1 bonds are perpetual, which means they never have to be repaid. But many investors in the bond believe the bank will make the customary payment at the first opportunity, often five years after the initial offering. A decade ago, deutsche bank shocked markets during the financial crisis by deciding not to prepay similar bonds.

Bond prices fell immediately after the announcement, to 0.9675 for the euro.

Last month, Spain’s santander announced it would close 140 branches in the UK to cope with the changing needs of customers. The move will affect 1,270 employees at the bank.

Santander said in a statement that the decision is due to the increasing number of bank customers to digital platform, the demand for physical banking services reduced. Over the past three years, the number of transactions through santander’s subsidiaries has fallen 23 per cent, while the number of transactions through digital channels has roughly doubled.

Susan Allen, head of retail and commercial banking at santander, said the way bank customers choose to do business has changed dramatically in recent years, with more customers using online and mobile channels. As a result, santander has had to close its smaller branches.

Last month, Spain’s santander announced it would close 140 branches in the UK to cope with the changing needs of customers. The move will affect 1,270 employees at the bank.

Santander said in a statement that the decision is due to the increasing number of bank customers to digital platform, the demand for physical banking services reduced. Over the past three years, the number of transactions through santander’s subsidiaries has fallen 23 per cent, while the number of transactions through digital channels has roughly doubled.

Susan Allen, head of retail and commercial banking at santander, said the way bank customers choose to do business has changed dramatically in recent years, with more customers using online and mobile channels. As a result, santander has had to close its smaller branches.

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