Europe

The ECB’s unprecedented refinancing operation may hit covered bond supply at the short-end of the curve, but medium and long-term issuance — the mainstay of the covered bond market — could benefit from greater confidence in banks’ health, bankers told The Cover.

Singled out for special treatment by European regulatory initiatives, covered bonds were the funding tool of choice for the region’s banks in 2011. But an escalating Eurozone crisis meant the record-breaking market entered 2012 relying on state support.

Lloyds TSB has mandated Barclays Capital, Natixis, and UniCredit, alongside itself, as leads for a euro denominated covered bond early in the new year. It will be the UK borrower’s first benchmark covered bond since March.

Eusebio Garre has decided to leave his position as head of funding at Deutsche Postbank, ending a 15 year stint at the bank.

Unless sovereign debt market volatility subsides, it seems likely that publicly placed covered bond financing could remain shut for peripheral issuers in 2012, potentially forcing Spanish and Italian banks into the same category as Portuguese and Greek banks which were unable to access the market at all last year.

France will remain the largest source of covered bond supply in 2012, bank research analysts unanimously expect, with Obligations à l’Habitat set to continue its ascent as the dominant format for issuance. Spreads remain at historic wides, but bankers expect the French institutional bid to remain robust and issuers to capitalise — even at current levels.

In further signs that the covered bond triple-A world is shrinking, Moody’s has downgraded HSH Nordbank and Deutsche Kreditbank’s (DKB) public-sector and mortgage Pfandbriefe. Dexia Municipal Agency’s covered bonds have also lost their triple-A rating, following Moody’s downgrade of Dexia Credit Local’s issuer rating.

Crédit Agricole Home Loan SFH has tapped its 3.25% March 2017 for €275m, at the tight end of guidance at mid swaps 140bp. Financing on the deal, which has now grown to €1.525bn, was done at very competitive levels. Thanks to the solid reverse enquiry and small size the borrower halved the new issue premium, bucking the trend set by other recent taps.

Euro benchmark supply will drop in 2012, covered bond analysts predict, despite the product having become the cornerstone of bank funding. Rarely have analysts’ expectations diverged so far, with issuance estimates ranging from €120bn-€190bn.

Moody’s has placed five Spanish covered bond programmes on review for downgrade, after taking the same action on the issuers.

Citi has lost one of its covered bond specialists, leaving the firm’s FIG team to take responsibility for the secured funding product. The move comes amid suggestions that other banks could look to do the same in order to reflect the covered bond market’s shift from being a rates product to a more credit-orientated instrument.

Barclays raised €750m from two taps at either end of the curve, in spite of increasing concern that Standard & Poor’s could downgrade France, several other European countries, and the EFSF.