Covered Bonds

The conditional pass-through structure that is presently being marketed by NIBC changes one detail in the covered bond structure. It is far from the sort of sweeping revolutionary change that some are suggesting. Rather it would resolve a number of problems that exist in the present covered bond structure and there is proof that other techniques that have similar effects have been easily digested by bondholders before.

France’s Caisse Francaise De Financement Local returned to the market for the second time this year to issue a 15 year euro deal — the fourth of 2013, but the first from France. It offered a modest premium to the French curve and, being sufficiently different from a host of other covered bonds out at the same time, it was well received.

Mediobanca mandated Barclays, Société Générale CIB, UniCredit and itself to arrange European fixed income investors meetings from September 30 to October 4 for a new mortgage backed deal to be issued off its Obbligazioni Bancarie Garantite programme.

There were fears that investors had hit their country limits for Ireland earlier this month, when AIB Mortgage Bank’s five year covered bond drew a lukewarm response. But Bank of Ireland disproved this on Wednesday by pulling in a big oversubscription for the longest maturing Irish covered bond issue since the sovereign crisis.

Royal Bank of Canada sealed its place as a truly global issuer when it returned to the dollar market for the second time in three months to raise $2bn of five year funding, its longest SEC registered deal in the currency so far. This was its fourth benchmark covered bond deal of 2013, making it by far the most prolific borrower with the broadest global reach.

Five issuers from France, Germany, Ireland, Austria and Italy have joined the covered bond pipeline. And, with the European Central Bank ready to consider further extraordinary liquidity measures, the conducive technical backdrop looks set to remain. Despite this, the longer term supply outlook remains uncertain and overall issuance, which is at the decade’s low, is not about to improve.

With market conditions still buoyant and the FOMC meeting and German elections now out of the way, there should be some new covered bond deals this week, bankers told The Cover on Monday. There is a good chance of a couple of deals surfacing as several issuers have finished roadshows recently and are ready to move.

Spain’s frequently criticised Cédulas framework has come under fresh scrutiny after reports that the European Commission believes it severely undermines senior unsecured investors by giving covered bondholders preferential claim to a bank’s entire mortgage portfolio. The news comes nearly a year after The Cover first reported that the law was being reconsidered.

Competition for the hottest venue was fierce in Barcelona last week as bankers got down to some serious revelling after The Cover’s annual awards.

A Dutch Mortgage Institute (NHI) that will issue a new type of government-guaranteed bond moved a step closer to fruition this week, after a high-level committee advising the Dutch government endorsed it as a way of reducing costs for mortgage borrowers. The initiative may lead to lower covered bond supply but the net impact will be minimal given very little is currently being issued and given doubts, expressed by Fitch, suggesting the scheme offers little material benefit for banks.

Moody’s has invited market participants to comment on a proposed adjustment to its cover bond rating methodology that, if put into practice, will lead to rating uplifts. The consultation reflects the European Union’s newly proposed Bank Recovery and Resolution Directive and comes just in time to prevent the covered bond programmes of two Italian banks from being downgraded to sub-investment grade — although Moody’s was at pains to point out the timing was a co-incidence.

ANZ New Zealand this week issued a €500m five year mortgage-backed covered bond through joint leads ANZ, Barclays, and UBS. In contrast to a recently issued deal from its parent bank, the transaction was comfortably oversubscribed, well prepared, offered an attractive new issue premium and was well timed.