Covered Bonds

After Bankinter and Banca Popolare Di Milano successfully issued taps on Wednesday, Banca Carige will today price an Eu500m deal on the back of Eu1.2bn demand. Given that the order book and deal size could have been heavily increased, lingering doubts over tier two borrowers’ access to the covered bond market should be dispelled.

Compagnie de Financement Foncier’s latest US dollar fundraising was particularly notable for the number of new, real money accounts in the book, illustrating the immense potential for other issuers to diversify their investor base. And, with a US law likely to be in place before year end, this appetite can only increase.

Danske Bank opened and closed books in quick succession on Wednesday for the inaugural deal off its cover pool C programme which mixes both commercial and residential mortgages.

As covered bond issuance rises in proportion to a bank’s total asset base, recovery prospects for senior unsecured noteholders dwindle, says Bank of America Merrill Lynch. BofA Merrill research suggests that, in what is admittedly a remote possibility, senior unsecured oteholders will see no recovery if covered bond issuance is equal to or more than 40% of total assets — a proportion which already includes 49 covered bond issuers.

In what is likely to be viewed as a further positive legal development for the French covered bond market, the decree for Obligations de Financement à l’Habitat was published in the Journal Officiel earlier this week. The new law will have the benefit of being Ucits compliant, say bankers and should emerge at the beginning of April.

The book for Santander’s Eu2bn 4-year cédulas hipotecarias was swelled, once again, by demand from UK credit accounts on Monday. One of the leads dismissed talk of order inflation, and confirmed that eight of the top 10 accounts usually expect to be filled in full. Danske is due with its first mixed commercial and residential backed deal later on Tuesday, or Wednesday, and Clydesdale is back in focus.

The primary market opened with a bang on Monday morning as books on the newly announced Santander four year exploded with Eu4bn of orders. But the strength of demand for this national champion is likely to provide an interesting contrast to Banca Carige, which has embarked on a three day roadshow.

The Australian Prudential Regulation Authority (APRA) will not initially allow covered bonds to qualify as level two assets under the Basel Committee’s Liquidity Coverage Ratio (LCR) requirement, it said in a statement on Monday. “There are no assets that qualify as level two assets,” it said. However, by the time the regulations are to be introduced, it may change it mind.

ING Bank on Thursday took advantage of a quiet market to price a Eu2bn five year Dutch covered bond, in an exercise which demonstrates that despite volatility investors have plenty of money to put to work – not least in dollars. Intesa Sanpaolo is expected with an inaugural dollar deal which bankers said would likely be followed by other European national champions.