Given ABN Amro's enthusiasm for covered bonds as a lead manager and the prototype structured covered bonds issued by its Bouwfonds Nederlandse Gemeenten subsidiary, it was a question of when rather than if the parent bank would itself launch its first covered bond.
When ABN Amro Bank launched its long expected first covered bond in mid-September, it proved worth the wait, if investors' enthusiasm was anything to go by.
Within three hours of opening the books, leads ABN Amro, Ixis and WestLB had taken Eu5.8bn of orders, enabling the Dutch bank to price its debut at the maximum Eu2bn size and the tight end of the 7bp-8bp guidance. A Eu2bn seven year follow-up led by ABN Amro, HSBC and HVB in January also proved successful.
Much of the structure was borrowed from that used by UK banks, although ABN Amro's senior unsecured Aa3/AA-/AA- ratings allowed it to create a product akin to HBOS's rather than that bank's lower rated peers. The deal was a hard bullet, rather than a soft bullet, for example.
Erik Bongearts, head of asset liability management at ABN Amro in Amsterdam, said that he hopes the market will value the covered bond accordingly. "We think that we have a very conservative and therefore investor-friendly structure, so we absolutely believe that we can be a top name in the covered bond market," he told EuroWeek.
But as well as the structure, the first Dutch covered bond shared the UK's 10% risk weighting as a result of being created before a regulatory framework had been put in place. Indeed ABN Amro went ahead with its structured covered bond after earlier Dutch efforts to introduce a covered bond law had made little progress.
Back in June 2003 the Dutch Association of Banks (Nederlandse Vereniging van Banken) set a comparison of the German, French, Luxembourg and Irish legislations to the ministry of finance with a proposal for a Dutch covered bond law. However, this proposal was not taken up by the ministry of finance.
Covered bonds are nevertheless already recognised as a special asset class by the Dutch central bank (De Nederlandsche Bank, DNB) and issuance from Germany, France, Luxembourg, and Ireland — as well as from Austria, Denmark and Spain — is assigned a 10% risk weighting for Dutch banks holding the paper under chapter 4011, paragraph 02.3.1a of the DNB's rulebook.
The ministry of finance and the DNB are considering giving Dutch covered bonds a similar risk weighting. At the European Covered Bond Council meeting in February where the UK's Financial Services Authority announced that it would create a Ucits-eligible framework in the UK, the two Dutch authorities said that they could move towards a similar goal as part of the country's Basel II implementation.
"The ministry of finance and the Dutch central bank are currently analysing Ucits 22(4) in the context of their Basel II implementation," said the ministry and DNB in a joint statement. "They intend to complete the implementation of Basel II by the end of 2006.
"As long as there is no specific covered bond legislation in place, a temporary solution may be provided for in the Basel II implementation; the feasibility of such [a] temporary solution is, however, still to be considered."