Europe

Covered bonds are likely to be so well ring-fenced from a regulatory perspective compared to other forms of bank debt that it makes sense to delink the asset class from the rest of the bank credit universe, a major investor told The Cover on Thursday.

RBS announced several proposals related to the swap triggers in its covered bond programme after being downgraded by Moody’s. The plans, which will be subject to an investor vote, will allow RBS to remain the swap counterparty and thereby help it to avoid the higher cost of employing an alternative swap provider as was envisaged under the original swap agreement.

Banca Popolare di Sondrio surprised the market on Tuesday, announcing and pricing its inaugural Obbligazioni Bancarie Garantite via sole lead BNP Paribas. The newcomer which is a slightly larger institution than its more established covered bond peer, Credito Emiliano, offered a deal with a substantial spread pick up enticing a broad swathe of investors. (This article has one comment)

Moody’s upgrade of Portugal last Friday bodes well for the prospective upgrade of the covered bonds issued by Santander Totta, said analysts on Monday. It should also help to limit covered bond contagion spreading to other lenders, in the event of further negative headlines emerging related to the troubled Portuguese lender, Banco Espirito Santo (BES).

Appetite for risk in the covered bond market has risen markedly over the last two years, according to a survey of the 180 German investors who attended NordLB’s global capital markets conference on July 17. (This article has one comment)

Growing demand for real estate finance in Germany is likely to trigger growth in mortgage Pfandbrief issuance over the medium term, said NordLB covered bond analysts in a recent briefing paper after outstanding mortage Pfandbrief volumes fell in 2013.

Pimco, after staying clear of Portuguese bank or sovereign debt for five years — was in Lisbon recently to investigate opportunities in the troubled peripheral jurisdiction generated by the ongoing Banco Espirito Santo (BES) headlines. The meetings came as several sell-side research analysts tipped Portuguese covered bonds as a good relative value opportunity versus periphery peers.

Deutsche Hypothekenbank, NordLB’s commercial real estate subsidiary, opened books on Monday for its first Pfandbrief of the year. Despite the time of year – this deal is the first German issuer to price a deal in the second half of July for over four years – leads attracted a heavily oversubscribed order book. Credit market conditions in the Euro area provided a constructive backdrop for execution, with Bunds stable and periphery markets recovering.

The first draft of the Pfandbrief Act 2015 offers some remarkable novelties, according to Commerzbank research, which said in its latest weekly publication that proposed changes should not cause any headaches — and may even improve transparency. Moody’s agreed saying that the draft proposals were credit positive.

Deutsche Hypo has mandated joint leads for a €500m five year mortgage Pfandbrief to be launched in the near future.

Landesbank Hessen-Thueringen (Helaba) sealed its place as the largest covered bond issuer so far this year after doubling the size of a seven year public sector backed Pfandbrief on Thursday. The approach, which mirrors last year’s strategy, has enabled the bank to raise a lot of funding at competitive levels while giving investors much needed liquidity, as well as minimising its asset-liability mismatches.

The focus of activity in covered bonds was squarely on Banco Espirito Santo on Tuesday morning with bankers reporting that its one outstanding publicly placed covered bond had widened by 25bp from last Friday. In contrast to the bank’s subordinated debt, which risks being completely wiped out, there is a strong expectation its covered bonds will be fully redeemed on time. However, further mark to market pressure is likely. With Portugal on review for an upgrade, the covered bonds of Santander Totta and CGD present value.