Covered Bonds

The covered bond market re-opened in fine form this week, with a trio of well timed benchmark deals launched from core Europe. The long break has left investors cash-rich, and syndicate officials agreed the market was constructive and would welcome further supply.

The effect of a restructuring of Greek sovereign bonds on the public sector cover pools of German, French, and Luxembourg issuers would be manageable, according to Deutsche Bank research.

Labelling and transparency dominated discussions at last Friday’s plenary meeting of the European Covered Bond Council, held in co-operation with the European Central Bank. Investors are becoming increasingly vocal in their demands for collateral transparency but issuers are seemingly pushing back. And developments this week out of Germany and Spain reveals that even the most basic regulatory standards of transparency are still not being met.

Three large, benchmark issuing German banks failed to publish cover pool data by April 30, contravening new transparency provisions stipulated in the Pfandbrief Act 2010. Although minor, the incident shows that even in core jurisdictions, banks have not fully adjusted to new guidelines. With investors, backed by the European Central Bank, likely to succeed in pushing for even greater transparency, banks will have to become more adept at dealing with change — or risk the consequences.

Bank Austria launched a Eu1bn three year public sector deal off the back of its largest order book yet on Wednesday. Though benchmark issuance stalled on Thursday, the trio of deals launched so far this week have been exceptionally well received, with the market rewarding rare high quality core names.

The expectation of Australian government approval of covered bond legislation by the third quarter of 2011 has brought into sharp focus the potential for business expansion in Asia. Commerzbank, which has offices in Singapore and Hong Kong and has a solid presence in Europe, is poised to step up its efforts in Asia covered bonds with the promotion of Robert Londrigan to run Asian DCM origination.

Stadshypotek priced the tightest Swedish covered bond deal of the year on Wednesday, and the tightest non-Pfandbrief trade of 2011. The Eu1.5bn print was increased from the planned Eu1bn on the back of strong central bank participation, and an order book of Eu1.8bn.

Having sold its first Eu1bn print in February, Bank Austria returned to market on Wednesday, convincing over 100 accounts to participate in a Eu1bn three year public sector backed benchmark deal.

OTP Mortgage Bank in Hungary is expected to issue a benchmark euro denominated transaction before the summer. Despite a relatively low rating compared to western European covered bonds, the bank enjoys solid core European investor sponsorship thanks to its high quality origination standards, the solid law and the sovereign’s continued ease of access to the capital markets.

Moody’s has rapped Spanish covered bond issuers for failing to improve on newly improved Bank of Spain disclosure requirements, just a few days after the European Covered Bond Council plenary session, in which investor calls for improved transparency were top of the agenda. Moody’s says many of the 60 cédulas issuers are not complying with new and more stringent annual report requirements.