Covered Bonds

Guidance on Nationwide’s Silverstone RMBS is identical to where Santander UK placed Holmes 2011-3 three weeks ago, reflecting Silverstone’s status as a top tier issuer in the UK market, as well as sluggish spread movement in the wider senior RMBS market.

Royal Bank of Scotland targeted US bank accounts, including JP Morgan, Citi, and perhaps Wells Fargo, when it preplaced £1.58bn equivalent of its Arran 2011-2 RMBS on Monday evening. The UK bank also retained $1.91bn of senior notes, split into tranches with coupons 2.5bp apart. Bookrunners were Bank of America Merrill Lynch, Citi, JP Morgan and RBS, with Wells Fargo present as co-manager. JP Morgan and Citi both disclosed in the offering circular that they were taking positions in the deal.

US covered bond legislation could get sidelined and face several more years of delay, frustrating the market which was hoping to see results before the end of 2011. The country’s long-awaited covered bond law could be sucked into the wider US housing reform debate, and thereby get pushed back even further, Bert Ely, a banking consultant told a key industry conference in New York at the end of last week.

Caisse de Refinancement de l'Habitat is poised to price a €1.4bn 12-year deal at the tight end of mid-swaps plus 120bp-125bp spread guidance. With a book in the region of €1.6bn, supported by robust Nordic, German and UK demand, the deal is a strong endorsement of the French banking system. Though there is doubt over whether other French issuers will follow its lead, the market is clearly there for the right name at the right price — as today’s DNB Nor Boligkreditt’s mandate announcement illustrated.

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Nationwide had the audacity to announce, open and price a jumbo deal hours before Thursday’s potentially market moving announcements from the ECB and Bank of England. But its boldness was rewarded as the issuer printed €1.5bn instead of the targeted €1bn, showing the market what could be achieved with the right name, even in the narrowest of windows.

The mood has clearly improved following yesterday’s ECB announcement on the second round of covered bond purchasing, and whilst there are hopes that issuance will begin to improve next week, its going to be a trickle and not a stream. Moreover, the programme will do little to allay fears over the peripheral sovereign outlook or their banks' access to the markets. Investors are expected to remain in risk off mode until November 3rd, when more details will be known.

Moody’s has downgraded 12 UK banks due to a downward reassessment of their systemic support. The large banks have been downgraded one or two notches and the smaller ones were downgraded up to five. All bar Yorkshire building Society are expected to maintain their triple A covered bond rating.

Nationwide’s decision to brave the waters with a €1.5bn five year clearly paid off, with the €2.4bn book sending a strong signal to other borrowers to take advantage of the funding window.

Moody’s took the axe to Italian banks’ covered bond ratings this week after its three notch downgrade of the sovereign and leading banks, including Intesa and UniCredit, to A2. The agency downgraded six issuers on Wednesday and placed the mortgage covered bonds of four others on review.

Nationwide had the audacity to announce, open and price a jumbo deal hours before Thursday’s potentially market moving announcements from the ECB and Bank of England. But its boldness was rewarded as the issuer printed €1.5bn instead of the targeted €1bn, showing the market what could be achieved with the right name, even in the narrowest of windows.

Covered bond bankers disagree over the likely impact of the €40bn buying programme that the ECB begins next month. Only two-thirds the size of the institution’s 2009 purchases, the one year programme’s distribution by jurisdiction is still unclear — as is its capacity to persuade other buyers into peripheral paper.