Covered Bonds

Westpac has mandated Deutsche Bank and Westpac to arrange a series of investor meetings in Europe and will visit Frankfurt, Oslo, Helsinki, Duesseldorf, Munich, Zurich, Vienna, the Netherlands, Paris and London. The borrower is also planning an A$ benchmark following the Commmonwealth Bank of Australia’s success. But scope for eurozone issuance this week is expected to be limited as many banks enter blackout.

As eurozone issuers slip into blackout, Australian, Nordic and Canadian names have taken over primary market supply. Westpac is planning trades in euros and Australian dollars, while Sparebank 1 Boligkreditt began taking indications of interest on a seven year trade this Monday morning.

After a spree of issuance by Australian banks in foreign currencies, Westpac announced plans on Friday to issue its first Australian dollar covered bond, while Bank of New Zealand raised NZ$225m ($180m) through a domestic private placement.

Lloyds launched the sixth sterling deal of 2012 on Friday; the longest dated transaction so far this year and one of the most oversubscribed sterling trades in months. Year to date supply in the currency has already surpassed lower bound estimates for total 2012 issuance, with a raft of UK names yet to come to market.

After three floating rate sterling covered bonds in a week, demand may be approaching exhaustion, for now at least. Lloyds has therefore decided to move to the other end of the curve, mandating BNP Paribas, Lloyds, RBS, Santander and UBS for a sterling deal with at least a 10 year maturity that will be launched on Friday. The transaction comes amidst an appreciably more positive credit backdrop, suggesting Eurozone issuers might be tempted to return next week.

On Thursday UBS issued its debut dollar deal and the first Yankee covered bond of 2012. The $1.5bn three-year priced in line with guidance on an order book just shy of $2bn. Initial indications suggest the deal relied more heavily on international demand than previous US dollar benchmarks.

A sizeable new euro bid for UK RMBS emerged this week as Santander UK’s £2.2bn-equivalent Holmes 2012-1 provided the sector’s first issue of the year. The deal raised funding at levels considerably tighter than where it could have issued in covered bonds.

Some 43% of National Bank of Greece covered bondholders submitted their paper for buyback below par, helping the bank reach a €300m core tier one gain through its liability management exercise.

In stark contrast to the sudden burst and then abrupt stop in covered bond supply from Eurozone names, Nordic and Swiss issuers have brought a steady succession of successful trades. Terra Boligkreditt sold its third ever transaction this week, and UBS made its first foray into a new currency, restarting the dormant dollar market.

Australia and New Zealand Banking Group on Monday initiated what bankers tip to be an Australian-dominated covered bond scene in Switzerland in the next few weeks. ANZ issued a blow-out Sfr725m dual tranche deal — the first under new Australian legislation and the largest new franc covered bond in recent years.

While Australian banks got a multi-currency array of public and private covered bonds away this week after their trio of inaugural euro benchmarks last week, a further sale in the currency by one issuer’s New Zealand subsidiary flopped. Despite Bank of New Zealand’s significant over-collateralisation and ultra-low loan to value ratio, its quintet of lead managers had to postpone its expected deal.

Barclays Bank, Nationwide and National Australia Bank all tapped the sterling market with three year floating rate covered bonds this week. The unusual format gives issuers another way of raising funding, though some bankers questioned the amount of liquidity now left for this sort of deal.