Spain

An innovative puttable three year cédulas hipotecarias for La Caixa was successfully generating interest from investors this (Thursday) morning, with more than Eu600m of orders placed in the first hour and a half of bookbuilding.

La Caixa will be selling a Eu1bn short four year cédulas hipotecarias to domestic retail investors in the coming days at a spread of Euribor plus 10bp. The deal is believed to be the largest Spanish covered bond to be sold to end investors this year and shows cédulas issuers’ access to an investor base that is often overlooked.

Investors’ reactions to the performance of covered bonds in today’s turbulent markets was a topic of discussion at the IIR Securitisation 2008 conference in Amsterdam last Thursday. But while there was understanding of their sentiments, their greater comfort with a certain German name than top Spanish names was questioned.

Spanish banks have been in action in the senior market this week, giving the lie to the belief that the country’s financial institutions are struggling to find alternative funding sources to central bank liquidity facilities. However, the covered bond market appears as firmly closed as ever and analysts are continuing to slash their forecasts for cédulas supply this year.

Santander is said to have retreated from launching a new three year benchmark covered bond today (Thursday), after having sounded out the possibility of a deal yesterday (Wednesday).

Covered bonds have been a crucial funding source for Spanish banks in recent years. But following a surge in supply in late 2007, the cupboard of Spanish cédulas has been bare. Oversupply has often been the product’s problem, but Spain had made big efforts to moderate this and with updates to the domestic covered bond framework Spanish issuers were on track to improve their profile. In difficult market conditions, will this be enough to bring issuers back to market?

The covered bond market endured a rocky morning today, with spreads widening alongside heavy falls in equities, giving the European Covered Bond Council further food for thought ahead of its meetings in Milan later this week. But Germany could once again prove the exception in the primary market.

Barclays Capital’s analysts have slashed their forecasts for benchmark issuance in 2008 by Eu40bn, from Eu190bn to Eu150bn, lower than any bank was expecting only two months ago.

Ahorro Corporación Financiera’s Alex Sánchez-Pedreño turned quiz show host at the Euromoney Bond Investors Congress yesterday (Tuesday), presenting, for one day only, that Spanish housewives’ favourite, “How well do you know the Spanish savings banks?”.

The dislocation between credit news and secondary market spreads was highlighted last week by Standard & Poor’s upgrade of Banco Bilbao Vizcaya Argentaria from AA- to AA and Fitch’s downgrade of Düsseldorfer Hypothekenbank to the brink of junk. But this was just one of several clashes between perception and reality identified by analysts at the Marcus Evans covered bond conference late last week.

Soledad Nuñez, director general of treasury and financial policy for the Kingdom of Spain, said yesterday (Thursday) that she hoped to begin the public consultation on the secondary regulations supporting the update of Spain’s cédulas framework by the end of this month. She also decried what she said were misrepresentations of the country’s economic health, in particular the Spanish banking system’s supposed heavy reliance on the European Central Bank for liquidity.

The primary market’s calm this week has come as no surprise, but bankers are looking for clues to future activity and BankInter is regarded by some as having the necessary strength to reopen the Spanish market, with the multi-sellers finding little favour in the current market.