BBVA issues $1.5bn perpetual bond BBVA has issued an innovative $1.5bn bond to boost an important measure of its financial health, promising a bumper coupon to attract yield-hungry investors to the unusual structure. The perpetual bond can be called after five years, but would convert into equity in certain stressed scenarios, and will therefore count towards BBVA's tier one capital, a common gauge of a bank's solidity. To entice investors, BBVA promised a coupon of 9 per cent. Bankers working on the deal said it was the first deal to comply with the EU's Capital Requirements Directive IV, which was formally passed last week. CRD IV, which could come into effect by next year, mandates that banks should set aside more and higher quality capital as a cushion against future crises. "This establishes the fact that traditional fixed income investors will be perpetual, Basel III, loss-absorbing capital, a point which had been questioned in the past," said Barry Donlon, a banker at UBS who worked on the deal. Banks across Europe have been boosting measures of their financial health ahead of stricter new regulations. These have ranged from raising fresh equity, the best form of capital, to selling so-called CoCos - or contingent convertible bonds. Some CoCos convert into equity, as the BBVA bond does, while others are dubbed "wipeout bonds," as investors can lose all their money if a bank runs into trouble. Several banks have issued CoCos and writedown bonds, but BBVA is the first to issue bonds that comply with the EU's CRD IV. Bank of America Merrill Lynch, Goldman Sachs, UBS and BBVA itself were lead managers on the offering. The coupon payments are "fully discretionary," but the deal still attracted orders of over $9bn, mostly from investors in Asia and the UK. The Spanish lender is likely to presage a wider flurry of similar deals, according to analysts. "We're close to the tipping point where we could see a lot of deals like this," said Matt King, a senior strategist at Citigroup. Encouraged by central banks, investors are desperate for yield, so they are willing to go into riskier areas. BBVA estimates that on a pro forma basis its core capital ratio will be lifted to 11.5 per cent, compared to 11.2 per cent in March. "We have substantially strengthened our capital base and we have led the market," Manuel González Cid, chief financial officer of BBVA, said in a statement. Still, some analysts noted that the bond had primarily been marketed in Singapore, Hong Kong, London and Zurich, where there are many private banks with rich, return-hungry clients, while institutional investors appeared to have stayed away. "It's probably gone to retail investors that are less discerning, and hedge funds," said Suki Mann, a strategist at Société Générale. The European Central Bank's promise to back embattled currency area members that request help has led to a dramatic turn in sentiment towards the European periphery. Coupled by easy monetary conditions, it has nurtured a desperate hunt for returns that has subdued the borrowing costs for virtually every borrower. Even European banks, shunned by many investors due to concerns over their exposure to sovereign debt, are now able to fund themselves comfortably and raise more capital from investors. The yield of a €2.25bn senior secured BBVA bond has tumbled to 2.07 per cent, down from a peak of 5.65 per cent last June, while shares in the Spanish bank have rallied by almost two-thirds over that period.