Covered Bonds

ABN Amro has become the second bank this year to remove a clause in its covered bond documentation that, in an issuer insolvency, stipulated pro-rata distribution of overcollateralisation (OC) to cover asset-liability mismatches for maturing bonds. As a result, the bank has lowered the amount of OC needed for a triple-A rating, making its programme more collateral efficient.

National Bank of Canada got a €1bn five year covered bond safely away on Tuesday, its first deal under the new Canadian covered bond law, after paying a healthy new issue premium to counter falling liquidity.

BBVA has brought forward the repayment of a retained €2bn Cédulas Hipotecarias to next week. It will give BBVA’s covered bond programme some breathing space after its eligible overcollateralisation reached the 125% limit by the end of the third quarter. The freed up collateral will also allow it to adjust its use of cover pool assets while it indexes its house price valuations.

With tentative signs of economic growth in some parts of Europe, and with the stigma of central bank funding starting to rise, a brighter outlook is emerging for covered bond deals in 2014. Bill Thornhill reports.

A single resolution regime, a single supervisory regime and a single fund, should, in theory, mean that southern Europe’s banks become delinked from their sovereigns.

Europe risks stagnating for much of the next decade, or even longer, without bold monetary policy, rapid reform and most importantly of all, a credible banking union, according to German government advisor Clemens Fuest. However, he warns that the banking union as it stands, will not work. Bill Thornhill reports.

As yields have plummeted over the last two years, insurers and asset managers — the mainstay of real money covered bond demand — have struggled to meet return on investment targets. However, as long term liabilities must still be matched, they are turning to alternative assets that, for regulatory reasons, banks are eager to offload. Bill Thornhill reports.

Norwegian banks have increased the credit quality of their covered bond collateral thanks to tighter mortgage underwriting criteria, according to Moody’s.

ABN Amro has become the second bank this year to remove a clause in its covered bond documentation that, in an issuer insolvency, stipulated pro-rata distribution of overcollateralisation to cover asset-liability mismatches for maturing bonds. As a result, the bank has lowered the amount of OC needed for a triple-A rating, making its programme more collateral efficient.

National Bank of Canada got a €1bn five year covered bond safely away on Tuesday, its first deal under the new Canadian covered bond law, after paying a healthy new issue premium to counter falling liquidity.

National Bank of Canada is still deciding when to launch a covered bond in euros, with bankers insisting there is enough liquidity for deals this week, though they conceded that very few issuers are under any pressure to pull the trigger.

The European Covered Bond Council wants covered bonds to be treated as highly liquid assets under Basel III’s Liquidity Coverage Ratio, backing up earlier findings from a European Banking Authority study. The ECBC wants policymakers to consider its Covered Bond Label Convention as an alternative gauge of liquidity, instead of a covered bond’s rating.