France

Spreads on French bank paper have been unaffected by Moody’s downgrades, which had been widely anticipated.

Crédit Agricole CIB has hired Nicolas Poli as global head of SSA and covered bond trading from Bank of America Merrill Lynch where he had worked for three years as director of SSA and covered bond trading. He will aim to build the bank’s dollar denominated SSA and covered bond trading platform.

Markets opened poorly on Monday morning and hit record wides in some indices, after concerns about Greece’s ability to meet its austerity commitments dominated weekend headlines. Syndicate bankers touted Tuesday as the day to bring a deal if market conditions were constructive, but the volatility means they expect no primary supply this week.

Two weeks of pressure on French covered bond spreads in the secondary market have pushed Dexia Municipal Agency’s outstanding paper to new wides. In the last two days however, spreads have tightened moderately and settled up to 100bp wider than where they were before the market re-opened on August 25. Fortunately the bank has finished its long-term funding for the year, and even if spread levels make public issuance economically prohibitive, it has developed other funding tools. Covered bond analysts see value for investors in buying their bonds now.

The Cover provides a brief summary of the regular covered bond research notes produced by Deutsche Bank, Société Générale CIB, LBBW, Barclays Capital and DZ Bank. With the covered bond to senior unsecured spread having widened considerably in the recent past, one of the key focuses is on relative value, and in some cases senior is preferred over covered. A couple of houses also look at the Scandinavian region with one highlighting the risk of house price declines on high LTV pools in Denmark and Sweden. Finally, one house looks at rising Spanish NPLs and finds that this should not be a problem – provided there’s a €75bn recapitalisation.

Prospective issuers stayed out of the European covered bond market on Thursday, ahead of the afternoon ECB interest rate announcement and press conference in Frankfurt. A deal is highly unlikely on Friday, which means the week will probably end without any European supply at all. Looking ahead, Norway’s Terra Boligkreditt finished its roadshow on Wednesday and may be the prime candidate to resume euro supply early next week — as long as weekend headlines don’t spook markets.

A UK based covered bond investor spoke to The Cover about the sovereign crisis. He believes the primary market should still be able to function, though the group of issuers capable of doing a deal will be much smaller. Greece is beyond hope, but he says the rest of Europe can still be saved.

Market participants were not swayed by a moderate rally in sovereign CDS and senior financials on Wednesday morning, preferring to hold out for a more stable backdrop. But with an ECB meeting in Frankfurt on Thursday and the Euromoney covered bond conference and ECBC plenary taking place on 14-15 September, opportunities for issuance might be limited to early next week.

Market conditions improved on Tuesday, though issuance remained elusive as issuers and investors waited to determine whether the relief would hold. Meanwhile Austrian, Norwegian, UK and French issuers are lining up.

Syndicate officials tried to remain positive in the face of worsening market conditions on Monday. After a strong post-summer reopening, market participants had hoped a full pipeline would carry momentum into this week. The primary market remained closed, however, and the secondary market is still hamstrung due to a lack of liquidity. Nevertheless, Raiffeisen Landesbank Steiermark has finished roadshowing and has mandated banks for a trade, while Norway’s Terra Boligkreditt will end its pre-deal investor meetings on Wednesday. Both benefit from strong credit fundamentals and relative rarity, and with investors keen to diversify into high quality paper hopes for issuance later in the week remain high.

Covered bond traders said the secondary market remained inactive on Monday with liquidity still seriously lacking. Most bonds issued since the market reopened have struggled to perform, while the weight of €20bn of supply was pushing spreads on outstanding bonds wider, they said.

The surge in covered bond issuance continued on Wednesday, with a trio of benchmarks taking issuance to more than €14bn since the market reopened in the middle of last week. Some 12 trades from 10 jurisdictions have been launched since then.