Covered Bonds

The exclusion of covered bonds from the impending bail-in regime will strengthen covered bonds’ credit quality and could lead to the first ratings upgrades next year, Moody’s said in its outlook for 2014.

Banca Carige’s residential mortgage covered bonds have lost their investment grade status after Moody’s downgraded them by three notches.

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 over-collateralisation 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.

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.