Covered Bonds

November 22-23, 2012 The Westin Cape Town, Cape Town, South Africa

Intesa Sanpaolo’s €1.25bn 10 year OBG has underscored enormous appetite for risk and has sparked debate over whether the funding door might be open for other smaller issuers from Europe’s periphery and particularly from Italy. However, it seems borrowers that could do deals would rather wait and see.

BPCE issued a €1bn seven year Obligations à l’Habitat on Wednesday just a day after France was downgraded. Its determination to go through with the deal was fully justified, said bankers, as spreads could widen when the market returns in January as fears over the French economy are likely to grow next year.

Şekerbank this week mandated banks for a European roadshow to gauge interest for a first public covered bond out of Turkey. The borrower is looking at €100m-€200m for its inaugural deal, and is confident of finding demand from covered bond and emerging markets investors alike.

Dexia’s rebranded Belfius Bank attracted a powerful swell of demand from a broad span of investors for the first bond it has ever issued and the first covered bond under the newly established Belgian law. But given the paucity of euro denominated supply and a lack of issuer diversity, the outcome was always likely to be good.

Jean-Philipe Berthaut, BPCE’s deputy chief executive and head of group funding, told The Cover it was a good idea for the French issuer to start 2013 funding with its €1bn seven year covered bond on Wednesday.

Moody’s awarded a triple-A rating to the mortgage covered bond programme of Belgium’s KBC, which mandated leads earlier this week.

Tuesday’s downgrade of France from AAA to Aa1 was not a surprise after Standard & Poor’s earlier move. Though it did briefly put pressure on French government debt, French covered bonds were stable.

Intesa Sanpaolo has succumbed to perennial investor demand for long dated peripheral issuance from a national champion and issued a €1.25bn 10 year bond. Though the funding margin is slightly negative, it is much better than even three months ago. More importantly, the deal is remarkable for its long duration.

BPCE issued a €1bn seven year deal just a day after France was downgraded. Its defiance of convention was fully justified, said bankers, as spreads could widen in January and macro-economic challenges still lie ahead.

Given the paucity of euro denominated supply and a lack of issuer diversity, the outcome of Belfius Bank’s — and Belgium’s — first covered bond was always likely to be good. But that should not diminish the extensive efforts the issuer made to address investors’ concerns with well-orchestrated marketing.

Sanjay Sofat, regional treasurer for Lloyds TSB in New York, is returning to London to head the bank’s senior funding team.