Bank of Cyprus Pays Steep Price to Tap Fragile Bank Capital Market

Investors demanded a hefty premium from Bank of Cyprus as it raised fresh capital this week, illustrating the continuing toll that heightened market volatility is taking on eurozone financials, the Financial Times reported. The Mediterranean lender is having to pay the highest coupon yet seen on a European contingent convertible bond, demonstrating the lengths that some of the continent’s weaker lenders will have to go to raise capital if market volatility continues. While demand for riskier bank capital bonds has waned across the board this year, Italian debt has been acutely affected given the political uncertainty in the country. Monte dei Paschi di Siena had planned to raise more capital before year-end, but would also face a steep price given that a €750m tier 2 bond it raised in January is now yielding more than 11 per cent. “Italian banks will have to issue more subordinated bonds at some point,” said Filippo Alloatti, a senior credit analyst at Hermes Investment Management. Read more. (Subscription required.)