Compound growth of 37% a year for the last 10 years would hardly sound bad to most bond market investors. Nor would the announcement of record profits this spring for the 42nd consecutive half year period put them off their breakfast cereals.
So enter then the world of Anglo Irish Bank. Founded in 1964, it has become Irelands third largest bank and fourth largest public company by market capitalisation.
While most of the banks business lending activities have been concentrated in Ireland, Anglo Irish also has operations in the UK and on the US east coast, where it started operations in 1998.
Its growth has been extraordinary. This May the bank announced that underlying profits had risen 47% and earnings a share by 45%.
Exponential asset growth
"The growth of the bank has been exponential over the last 20 years," says John Bowe, director of capital markets at the bank in Dublin. "We are not a retail bank and instead focus customer activity on businesses and business people. We have experienced strong balance sheet growth as a result of buoyant Irish and UK markets. In 2006 only, the balance sheet grew by 46%."
This business model has clearly been working for the bank. Three rating agencies have awarded the bank upgrades in the past 12 months.
Fitch upgraded Anglo Irish to A+ in September 2006, DBRS awarded it a high single-A rating that month too, Moodys boosted its rating this April from A2 to A1 and it is single-A with Standard & Poors.
"Having three high single-A ratings and a mid-single-A one is important to us as an issuer in particular in the US, where investors tend to be more rating-driven," says Bowe.
While still optimistic, Bowe does not expect this growth to continue at the same pace. "The Irish economy has been fantastic," he says. "However, we are starting to see a change in the rate environment and a change in market and customer sentiment. Our growth will moderate, but the market accepts that this will be the case."
Being able to access different markets is crucial to Anglo Irish, although it does not merely rely on wholesale funding. Indeed, according to Bowe, just over 20% of total funding comes from investors who make lump sum personal deposits, a model similar to ING Direct and Landsbankis IceSave.
Another 38%-40% of funding comes from organisations that are long term holders of cash, such as charities, local authorities and universities.
The balance of Anglos funding comes from the debt market, including MTNs, public bonds, covered bonds, commercial paper and certificates of deposit.
As an issuer, Anglo Irish is keen on exploring new areas when it comes to funding. "Our aim is to build long term scalability," says Bowe. "We have a very active debt investor relations effort and feel that when investors understand the business well and our strategy it paves the way for strong transaction interest and better execution."
For example, Anglo Irish opened a CP programme in the US in January last year, which now has close to $4bn outstanding. Since September 2006, the bank has raised the equivalent of over Eu8bn in the debt markets a 50% increase in volumes compared to the previous year.
Out of this Eu8bn, around Eu1.4bn has been subordinated capital, including a Eu750m 10 year non-call five lower tier two capital security, priced in June, and a £350m perpetual non-call five year non-step up tier one in May.
Anglo Irish also priced its first covered bond in 2007, a Eu500m April 2010 deal led by ABN Amro and Calyon. The transaction, a semi-private placement, was structured under UK law.
Covered bond expansion
In the future, Anglo plans to issue covered bonds under a full ACS platform, compliant with Irish covered bond law. "The primary legislation related to including commercial mortgages as collateral for covered bonds was passed at the beginning of the summer and we plan to become a regular issuer of Irish covered bonds by the second half of next year," says Bowe.
"We expect the proportion of covered bond issuance to increase significantly for Anglo over time and ultimately, it will constitute around 15% of our total funding. We regard the asset class as an important tool in our long term funding objectives. We expect to be one of very few issuers to issue covered bonds backed exclusively by commercial mortgages and this will effectively create a third asset class within this world."
Bowe says that Anglo Irish is also looking at becoming more active in the securitisation market. "We have not done any securitisation since 2000/2002," he says. "However, we are planning to return to this market now that we have set up an in-house team. Even though the Basle II framework has an impact on the attractiveness of this funding tool, we believe there will still be opportunities."
Anglo Irish intends to establish a 144A programme which will allow it to tap the US investor base for senior funding and regulatory capital. The issuer has not been to the US institutional market before. "Adding another funding avenue that we can tap is important, especially with the volatility in recent years in tier one, for example," Bowe says."By being able to access the US market, we will be able to access a deep pool of liquidity and will enter the space of the bigger banks."