Covered Bonds

Hyp Noe’s tightly priced €500m Aa1 rated seven year covered bond issued on Tuesday was thinly oversubscribed, in contrast to a similar sized triple-A rated six year from BayernLB which found greater demand despite being priced tighter and with a smaller concession.

The European Parliament has set out its version of the proposed European Covered Bond Directive, taking an alternative route to the European Commission’s plan and proposing a ‘premium’ covered bond category.

Intesa Sanpaolo issued a €1bn senior bond on Thursday as it looked to get ahead of other banks, while its main competitor, UniCredit, considers doing more this year.

On Thursday Berlin Hyp became the third German covered bond issuer to come to the market in three days after Deutsche Pfandbriefbank and Aareal Bank earlier in the week. It tapped its self-styled Jubilee bond.

Raiffeisenlandesbank Niederösterreich-Wien (RLB NÖ-Wien) was able to whittle down the new issue concession for its 8 year covered bond on Wednesday, but demand was weaker than for Tuesday’s two trades.

Eika Boligkreditt was more than twice subscribed for its no-grow deal on Tuesday, offering German investors a decent pick-up over both Bunds and Aareal Bank, which also came to the market.

Raiffeisenlandesbank Niederoesterreich-Wien (RLB NÖ-Wien) announced a mandate for a new trade on Tuesday, hoping that the rare product type and a fixed deal size will attract investors.

Eika Boligkreditt and Aareal Bank are expected to reopen the covered bond market on Tuesday, after announcing post-summer holiday mandates on Monday. Both are looking to complete seven year deals.

German issuers have wasted little time in selling preferred senior debt, after regaining access to the funding product through a legislative change last month. Berlin Hyp reopened the market with a tightly priced but thinly subscribed deal on Monday, and Commerzbank is looking to follow close behind with a debut offering of its own.

Berlin Hyp is set to become the first German bank to sell a preferred senior bond after issuers regained their access to the funding tool through recent legislative changes.

The sovereign credit crisis spurred lawmakers to undertake a number of major initiatives designed to sever the ‘doom loop’ — the link between sovereign and bank credit risk. Recent events in Italy and Turkey show the limits of these policies, but not their impotence.

The banking industry has largely backed efforts to use sustainable financing to cut capital charges through a ‘green supporting factor’. But regulators may use the stick, as well as the carrot, through temporary capital add-ons for dirty lending — something the financial industry is unlikely to welcome.