Covered Bonds

The Financial Services Authority is set to increase scrutiny on asset pools, raising the cost of doing deals, bankers have told The Cover.

The following document is a copy of all the shortlisted lead managers, issuers and deals that you will find in the poll.

European covered bond issuers, along with senior unsecured financials and investment grade corporates, were this week presented with excellent funding conditions, despite a ratcheting-up of pressure on Spain and Italy in the early part of the week.

Investors clamoured for allocations of a rare late-July covered bond issue from ABN Amro this week, placing €4bn of orders for the first Dutch deal since January.

Fitch has downgraded four Italian covered bond programmes to between double-A and triple-B. This latest round of cuts was driven solely by new over-collateralisation requirements, but Fitch is bringing in a new methodology and could look at Obbligazioni Bancarie Garantite (OBGs) again soon.

Standard & Poor’s has resolved rating watches on 12 multi-Cédulas and, in a rare move, even upgraded five other programmes. But hedge funds and fast money buyers continue to dominate interest in the multi-issuer asset class, despite some ratings being as high as double-A.

The covered bond market has remained active into late July and syndicate bankers say conditions are still good for further benchmark deals in the wake of ABN Amro’s success this week. With spreads returning to 2010 levels ABN chose to bring forward a jumbo deal originally scheduled for August. But as the macro outlook deteriorates, issuers cannot be sure that the secondary rally will survive the summer break.

Fitch has resolved its rating watch on Italian covered bonds, downgrading four programmes to between double-A and triple-B. This round of cuts was driven solely by new overcollateralisation requirements, but Fitch is bringing in a new methodology and could look at Obbligazioni Bancarie Garantite (OBGs) again soon.

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ABN Amro launched a €1.5bn seven year benchmark covered bond on Tuesday, building a book of over €4bn for the first Dutch trade since January. Pricing divided syndicate bankers away from the deal. But with the first jumbo transaction in three weeks ABN proved that the covered market remains primed for supply, and could urge other names to take advantage of a closing window.

Deutsche Pfandbriefbank (Pbb) on Monday returned to the covered bond market for the fourth time this year, tapping an outstanding seven year deal. Secondary demand has sent core spreads tighter across the board, and syndicate bankers expect more issuers to take advantage of an exceptionally attractive primary market.

Moody’s said it is concerned that the rising volume of retained covered bonds is allowing issuers to unilaterally relax standards on their programmes. Italian issuers have lowered collateral requirements and delayed the posting of additional collateral through adverse amendments, said the rating agency. Other jurisdictions, such as Spain, that rely heavily on ECB repo funding are also at risk.