As Best Euro Lead Manager, what distinguished the bank’s covered bond franchise?
Börsig: A very important part of it is our syndicate setup. You can have excellent originators, but without syndicate, sales and the distribution platform behind them, that only takes you so far. The other distinguishing feature is our core market. We are deeply rooted in Austria and Germany, but also in central and eastern Europe, where Erste is one of the largest banking groups in several countries. That gives us access to a very granular investor base across the German-speaking region and to issuers across CEE.
Combining those markets through one distribution platform is a fairly unique setup. It means we can connect eastern and western European markets while still operating largely within regions where we have a strong presence on the ground.
The franchise has also been very stable. Staff turnover across DCM is extremely low, and many of us have worked together for a decade or more. That continuity helps maintain the quality of advice and execution.
What have covered bond issuers been asking for from their lead managers over the past year?
Djurdjevic: You need a very good market read: advice on timing, preferred tenors, investor preferences and spreads. Continuity also matters. We have been doing this for more than a decade with relatively little change in the team, only regularly adding new colleagues, and we try to remain a reliable partner when markets become more difficult. Working on a lot of transactions also gives you detailed insight into how different investors behave, which you can feed back into your advice to issuers.
An important part of adding value is also being willing to tell an issuer not to issue. Earlier this year, when covered bond spreads widened, there were transactions where we advised issuers to wait rather than access the market immediately. Spreads subsequently tightened and they were able to issue more cheaply. Giving an honest view on whether it actually makes sense to come to market is an important part of the relationship.
Börsig: Investor work is really the evergreen element. Our core region is very diverse, and because our network extends across central and eastern Europe as well as the German-speaking markets, we can offer issuers access to a broad range of investors while still operating in markets we know extremely well.
Erste works across everything from smaller sub-benchmark transactions to large international benchmarks. How does that range affect the way you work with issuers?
Börsig: The value you bring is different depending on the issuer. A smaller borrower working with three banks needs something different from a large international issuer with seven banks in the syndicate. We aim to provide the same quality of advice and distribution across that whole spectrum.
That has developed naturally from our home markets, where you have both very large issuers and many smaller borrowers. In CEE, we have also been able to grow alongside issuers as their businesses and covered pools expanded.
Mladen, you were named Best Syndicate Banker. What has been most important to your approach to pricing, bookbuilding and execution?
Djurdjevic: We follow primary transactions very closely and try to retain the lessons from them, even weeks later. We also analyse investor behaviour in detail: who participates, when they enter the book, whether they use limits and how they react as a transaction develops. The question is whether those insights can then be applied to other issuers.
It’s important to follow the secondary market very closely and we have a strong relationship with our secondary trading desk. Combining primary and secondary-market information helps when you are put on the spot and need to give an issuer an immediate view. Ultimately, the objective is to get the best possible outcome for the issuer.
Börsig: The technical side is only one part of it. What Mladen also does very well is adapt to very different clients. A first-time issuer needs things explained differently from a large international borrower that may only have two minutes for a conversation.
He can make a new issuer feel comfortable and understand what is happening, while also condensing the same market message for a highly experienced borrower. It is still a people business, and that ability to communicate is important.
What do you expect to be the main themes shaping the euro covered bond market in the coming months?
Djurdjevic: In the very short term, we have seen a lot of supply since the end of the summer break — around €45bn in roughly a month — and demand has softened somewhat. There is a degree of saturation, so issuance probably needs to slow to give the market some breathing room.
Beyond that, relative value versus sovereign and SSA debt will be an important theme. Government debt levels remain high and refinancing costs are rising, which could put further pressure on sovereign spreads.
But fundamentally I remain very positive on covered bonds. They are highly rated, collateralised instruments, while bank earnings and capitalisation remain strong and NPLs low. We could increasingly see covered bonds from some jurisdictions price flat to, or even inside, sovereign levels, as has already happened in markets such as France and Italy. That relative-value dynamic could become increasingly important over the next few years.