Banco Santander Launches $850 Million AT1 Bond Tender Offer
0h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
banco-santanderat1-bonds
Fazen Markets Editorial Desk
Collective editorial team · methodology
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Banco Santander launched a tender offer to repurchase up to $850 million of its outstanding Additional Tier 1 bonds on 27 May 2026. The Spanish lender is targeting eight distinct AT1 notes denominated in both US dollars and euros. The tender aims to manage the bank's capital structure proactively ahead of upcoming regulatory changes. This is the largest single voluntary AT1 buyback program announced by a European bank since the Credit Suisse AT1 write-down in March 2023.
The European Central Bank will implement its final Basel III capital framework for significant institutions on 1 January 2027. This framework introduces stricter standards for loss-absorbing capacity, including specific requirements for AT1 instruments. The last comparable major AT1 buyback program occurred in September 2025 when BNP Paribas repurchased €600 million of its own CoCos. Global bank capital ratios have tightened in recent months, with the Euro Stoxx Banks Index down 4.2% year-to-date amid concerns over economic growth.
Santander's decision was triggered by its strong 2026 first-quarter earnings, which reported a Common Equity Tier 1 ratio of 12.3%, comfortably above its regulatory requirement. The bank generated €2.9 billion in net profit for the quarter, providing ample excess capital for liability management. Management signaled a strategic shift towards optimizing the cost and composition of its capital stack. This tender directly addresses investor concerns about the bank's legacy, higher-coupon AT1 debt issued in a previous rate environment.
The tender targets eight series of AT1 bonds with coupons ranging from 6.125% to 7.5%. The aggregate outstanding principal amount of the targeted notes is approximately $5.4 billion. Santander is offering to repurchase up to 16% of this total universe. The bank set a maximum acceptance amount of $850 million, with a minimum denomination of $200,000 and integral multiples of $1,000 thereafter.
The offer includes the 7.5% Perpetual Subordinated Contingent Convertible Security (XS2792719554). This bond's price surged from 94.5 cents on the euro to 101.2 cents following the announcement, a gain of 7.1%. The average yield-to-worst across the targeted bonds fell by 85 basis points in secondary trading. Santander's EUR AT1 index spread tightened 40 basis points versus a 5-basis-point tightening for the iShares EUR AT1 ETF (AT1).
| Metric | Before Announcement | After Announcement |
|---|---|---|
| Santander EUR AT1 Index Spread | +385 bps vs swaps | +345 bps vs swaps |
| 7.5% Perp CoCo Price | 94.5 cents | 101.2 cents |
The tender is priced at a premium to the 26 May closing prices, with details specified in an offer memorandum. The settlement is expected on 10 June 2026, pending regulatory approvals.
The tender signals strong capital strength and is a clear positive for Santander's senior bondholders and shareholders. It reduces future coupon payments and improves the bank's net interest margin profile. European bank equity indexes, particularly the Euro Stoxx Banks (SX7E), saw a 1.8% lift on the news as the action eased systemic capital concerns. Spanish sovereign credit default swaps tightened by 3 basis points, reflecting reduced contingent liability risk.
Direct beneficiaries include holders of the targeted bonds who will receive a cash exit at a premium. Secondary market prices for other European bank AT1s, especially those from BBVA (BBVA) and Intesa Sanpaolo (ISP), also rose between 1-2%. A counter-argument is that the buyback uses capital that could have been deployed for shareholder returns or organic growth, potentially capping near-term dividend upside. The primary risk is execution; if demand to sell exceeds the $850 million cap, the bank may scale back purchases pro-rata, disappointing some bondholders.
Positioning data shows hedge funds had built a net short position in European AT1s over the prior month. This news triggered a sharp covering rally. Flow is moving out of legacy, high-coupon AT1s and into newer, lower-coupon issues from banks with similarly strong capital ratios.
The next major catalyst is the ECB's Bank Lending Survey on 3 June 2026, which will detail credit conditions and capital demand. Santander's own second-quarter earnings report, scheduled for 24 July 2026, will provide an updated CET1 ratio post-tender. Investors will monitor whether other major European banks like UniCredit (UCG) or Société Générale (GLE) announce similar liability management exercises in the coming weeks.
Key levels to watch include the 10-year Spanish government bond yield, currently at 3.14%. A sustained move below 3.00% would further improve bank funding costs and support additional buybacks. For Santander stock (SAN), the €4.80 resistance level is critical; a break above could signal a re-rating. If the tender is heavily oversubscribed, watch for Santander to increase the offer size, which would be a further bullish signal for bank capital instruments.
Additional Tier 1 bonds, often called Contingent Convertibles or CoCos, are perpetual bank debt instruments designed to absorb losses. They convert to equity or are written down if a bank's capital falls below a predefined threshold, typically a CET1 ratio of 7%. They carry higher yields than senior debt due to their riskier, equity-like characteristics. Santander's offer targets these specific instruments to optimize its capital cost.
The tender uses retained earnings to retire expensive debt, which is accretive to earnings per share over the long term. It signals management's confidence in the bank's capital generation and reduces future cash outflows. However, it also means that capital is not being returned via dividends or share buybacks in the immediate term, which may temper short-term enthusiasm for the stock.
In March 2023, as part of its government-brokered takeover by UBS, Swiss regulator FINMA ordered the full write-down of approximately CHF 16 billion of Credit Suisse AT1 bonds. This event caused a global repricing of AT1 risk and heightened investor scrutiny over trigger mechanisms and regulatory discretion. Santander's voluntary buyback is viewed as a contrast to that forced loss event.
Santander's capital strength allows it to retire expensive debt early, setting a positive precedent for European bank capital management.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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