Spain

Moody’s has placed Banco Popular’s ratings on review for downgrade following an exchange offer from the bank for 100% of Banco Pastor’s shares and mandatory convertibles.

Traders reported muted flows in the secondary market on Wednesday ahead of Thursday’s ECB meeting, amid intense speculation that another round of covered bond purchasing could be announced. Italian bonds have reacted remarkably stoically to the republic’s triple notch downgrade — although this might be due to the absence of bids for second tier institutions.

Covered bond market participants are firmly focused on Thursday, when the ECB could announce another round of covered bond buying. Regardless of market conditions, a deal on Monday was always going to be unlikely because of German holidays. But the weak market opening has made a deal between now and the ECB meeting more tricky — particularly for the smaller names that dominate the pipeline. Covered bond traders reported a very quiet morning, with customers unwilling to take a position before Thursday.

Approval to create a new banking group, Kutxa Bank, has prompted Fitch to place the Long-term Issuer Default Ratings (IDR) and Viability Ratings (VR) of two of the three merging cajas, Bilbao Bizkaia Kutxa (BBK) and Kutxa, on Rating Watch Negative.

Moody’s placed Cédulas Hipotecárias issued by Unicaja on review for downgraded yesterday, and those issued by Caja España de Inversiones, Salamanca y Soria’s (CEISS) on review for upgrade.

Secondary markets broadly remain under pressure, though there are cracks of light appearing here and there. The long end of the French market seems to be stabilising, there have been some buyers of Cédulas and there is still a smattering of interest in selective Scandinavian names. But the outlook remains dim and relative value against other sectors suggests covered bonds are expensive.

Cédulas and multi-cédulas continue to fall under the gaze of rating agencies, with Moody’s putting Banco CAM’s cédulas programmes on review for downgrade and Fitch placing two of Banco de Valencia’s multi-cédulas hipotecarias on rating watch negative. The downgrades come as bankers complain that rating agencies have overlooked certain strengths in these deals.

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.

Santander UK has launched Holmes 2011-3, ending a two month drought in the public European ABS market. Market participants had been begging for a large multi-currency master trust deal to kick off a revived market, and Holmes fits the bill.

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.

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.

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.