Italian issuers anticipate replacing a large portion of their residential mortgage-backed securitization with covered bond issuance once a legal framework is in place in Italy, which optimists expect by the end of this year. The reduction in capital weighting requirements for prime residential mortgages under Basel II is driving the shift in preference, according to issuers who spoke at last week's Global ABS conference in Barcelona.
Camilla Tinari, head of structuring at Milan-based Banca Intesa, the leading mortgage lender in Italy, said after Basel II the bank will have less incentive to secure residential mortgages for regulatory capital relief and will turn to covered bonds for funding. "Covered bonds offer us cheaper funding relative to RMBS and longer maturities," said Tinari. She added that Banca Intesa does not have a large enough funding program to justify issuing both covered bonds and RMBS--unlike Halifax Bank of Scotland in the U.K., for example--and she anticipates doing one to two covered bond offerings of E1-2 billion per year starting in 2005.
Anna di Paolo, head of capital markets at MPS Finance Banca Mobiliare in Sienna, also wants to start using covered bonds. Unlike Tinari, however, she expects to see a mix of RMBS and covered bond issuance rather than a wholesale shift to covered bonds. "RMBS will still be used for funding purposes, even if regulatory relief is no longer a driving force," said di Paulo.
