Europe

Covered bond harmonisation must be ambitious rather than lowest common denominator, or there is little point in the project, according to a presentation at the Association for Financial Markets in Europe / Verband deutscher Pfandbriefbanken covered bond conference in Berlin.

This week the ECB scaled back buying in the primary covered bond market and gave the private sector a chance to set the price.

After a string of lacklustre covered bonds, the primary market found its mojo on Wednesday as Cassa di Risparmio di Parma e Piacenza (Cariparma) issued a larger and longer Obbligazioni Bancarie Garantite than its closest comparable. Despite a weak secondary market, the issuer was able to attract a book that was driven by private sector demand for its first public deal, because pricing was fair and was defined from the start of the bookbuild.

Cassa di Risparmio di Parma e Piacenza (Cariparma) has mandated leads for its inaugural Obbligazioni Bancarie Garantite, which is set to launch tomorrow following the roadshow which was finalised on Monday.

Standard & Poor's upgraded the Ireland-based but German-owned Depfa Bank PLC to 'A-' from 'BBB' with a stable outlook on Monday. The state-owned bank can soon be considered a Government Related Entity (GRE) and will benefit from increased state support following a transfer of its ownership.

The once beleaguered multi-Cédulas sector may well be a safer asset class to invest in because, over the last year, overcollateralization (OC) ratios have increased, said Fitch.

With a pall of misery hanging over the covered bond market, Cariparma’s debut covered bond, which could be launched next week, could be the final primary issue of the year.

WL Bank launched a covered bond into a weak secondary market on Thursday, pricing a five year close to where its 10 year had been trading. Screen prices give the illusion that spreads are holding steady, but in reality banks are scrambling to cut inventory and sales are being made below screen bids. But with primary activity likely to dry up, redemptions set to rise and ECB buying unlikely to slow down, the balance of flows will turn and spreads will tighten, said bankers.

Daniel Loughney, covered bond portfolio manager at Alliance Bernstein in London, speaks to The Cover about the outlook for covered bonds.

Credit Suisse has published a consent solicitation in which it proposes changing the maturity of its outstanding covered bonds from a hard bullet to a soft bullet. Though the market does not price for this difference, the issuer is willing to pay investors five cents to agree to the change.

Wienerberger, the world’s largest brick maker, has replaced two lines of credit with a €400m five year revolver.

UniCredit Italy has revitalised hopes for the conditional pass through (CPT) covered bond structure which was pioneered by NIBC over a year ago and was at risk of being ignored. The programme lowers asset encumbrance, improves access to funding and can be used to fund a broader range of mortgage assets with full preferential regulatory treatment. It should send a strong signal to other issuers across Europe, but especially those in Spain where an overhaul of the legal framework is on the table.