Covered Bonds

Eusebio Garre has decided to leave his position as head of funding at Deutsche Postbank, ending a 15 year stint at the bank.

Unless sovereign debt market volatility subsides, it seems likely that publicly placed covered bond financing could remain shut for peripheral issuers in 2012, potentially forcing Spanish and Italian banks into the same category as Portuguese and Greek banks which were unable to access the market at all last year.

New Zealand’s ASB Bank has kicked off its €7bn covered bond programme with a NZ$300m private placement, becoming the last of the country’s four big banks to issue covered bonds.

France will remain the largest source of covered bond supply in 2012, bank research analysts unanimously expect, with Obligations à l’Habitat set to continue its ascent as the dominant format for issuance. Spreads remain at historic wides, but bankers expect the French institutional bid to remain robust and issuers to capitalise — even at current levels.

In further signs that the covered bond triple-A world is shrinking, Moody’s has downgraded HSH Nordbank and Deutsche Kreditbank’s (DKB) public-sector and mortgage Pfandbriefe. Dexia Municipal Agency’s covered bonds have also lost their triple-A rating, following Moody’s downgrade of Dexia Credit Local’s issuer rating.

Crédit Agricole Home Loan SFH has tapped its 3.25% March 2017 for €275m, at the tight end of guidance at mid swaps 140bp. Financing on the deal, which has now grown to €1.525bn, was done at very competitive levels. Thanks to the solid reverse enquiry and small size the borrower halved the new issue premium, bucking the trend set by other recent taps.

S&P has placed eight covered bond programmes on CreditWatch negative following its decision on December 5 to place the sovereign ratings of 15 eurozone countries on review for downgrade. A two notch downgrade of France’s sovereign rating may mean a loss of triple A ratings for the public sector bonds of Crédit Mutuel Arkéa, Dexia Municipal Agency and Société Générale; all three programmes are on CreditWatch negative.

Fitch expects ratings pressure next year to remain primarily on peripheral covered bond programmes, because of their vulnerability to sovereign rating action. Its overall outlook is less bearish than its rivals, however, and this may be borne out in how it wields its rating hatchet. The rating agency has 21% of covered bond ratings on rating watch negative, “the majority of which are based in peripheral Europe”. In stark contrast, Moody’s has placed 69% of the covered bond programmes it rates on negative outlook.

Banks are being forced to rationalise their FIG desks to respond to the expected sharp drop in senior unsecured issuance next year. Covered bond specialists suggested that FIG syndicators and DCM bankers whose markets had dried up were looking to muscle in on covered bonds. Around 75% of FIG volume has come from the secured funding product this year.

The risk that German Pfandbriefe will be crowded out by a resumption of state guarantees in the form of SoFFin II has increased. Bankers warn that the performance of non-guaranteed Pfandbriefe could suffer — however, the extent of that prospective underperformance is likely to be a function of the spread on new guaranteed deals, along with the amount of guaranteed debt that might be issued.

The covered bond market has become so soft that even taps on outstanding bonds need substantial premiums if they are to be successfully executed. Barclays paid up 20bp this week to raise €750m from two self-led taps, following a trend started by French banks in November.

The European Bank for Reconstruction and Development and the European Investment Bank have bought the second of a three tranche SME-backed covered bond from Turkey’s Sekerbank via sole lead arranger UniCredit.