Spain

If recent reports are anything to go by, the Spanish banking system is on the brink of collapse. But this is far from the truth, even if cédulas issuers are adopting new strategies to cope with today’s irrational markets.

Analysts embarked on a perilous quest at the IMN covered bond conference in London yesterday afternoon. Armed only with data and pricing models, they set off in pursuit of relative value, pausing briefly to discuss adequate disclosure.

There has been speculation that BankInter and its leads are still trying to execute a transaction for the Spanish issuer in spite of the torrid conditions, with several market participants saying that they understood BankInter to be under time pressures in launching its inaugural cédulas hipotecarias, but The Cover understands that this is not the case, and that like other issuers with mandates outstanding, the banks is simply on the look out for opportunities.

Bad news hit French and German covered bonds this morning, stymieing issuance plans, but in spite of a sharp sell-off in equities one Spanish issuer is said to be close to launching the first cédulas of the year.

Apparently gentlemen prefer blondes but marry brunettes. Well from a performance perspective, investors should buy covered bonds from more volatile jurisdictions in the short run and then dump these for more stable products in the secondary market.

The UK government’s extension of guarantees relating to Northern Rock obligations on 18 December was seen as good news for covered bondholders. Moody’s downgraded Northern Rock’s bank financial strength rating from D+ to E+, but said that the extension “further underpins the Aa3 bank deposit and senior debt ratings”.

The Spanish parliament has approved the planned amendment to the Spanish covered bond legislation, which will come into effect the day after being published in the official state bulletin. Meanwhile, The Cover understands that a Eu3.5bn AyT Cédulas Cajas deal expected imminently will be mainly retained for liquidity purposes by the Spanish savings banks and partly privately placed with end investors.

Ahorro Corporación Financiera has decided to postpone any new AyT Cédulas Cajas issue, having last week mandated five banks to sound out investor sentiment towards a potential Eu1bn-Eu1.5bn three to five year deal.

The execution of the Eu1.05bn two year IM Cédulas 12 issue has shown that while the cédulas market is open, it is barely ajar. When the books were closed yesterday (Tuesday) afternoon the deal was only just oversubscribed, and Ahorro Corporación Financiera remains undecided over whether or not to tap the market next week with a Eu1bn-Eu1.5bn three to five year AyT Cédulas Cajas issue.

Bookbuilding for IM Cédulas’s Eu1.05bn two year multi-issuer deal got off to a steady start this morning, with its Eu500m of demand in the first two hours reflecting the measured pace of the five year Santander trade that reopened the cédulas market two weeks ago.

The growing importance of the cédulas market to Spanish banks in light of the dislocations in the asset backed securities market has been underlined by BankInter’s announcement that it will be launching its first cédulas hipotecarias. The bank has been one of the leading exponents of securitisation in Spain.

The maturity of IM Cédulas XII has been fixed at two years and Barclays Capital, Commerzbank, LBBW and Natixis are expected to launch the deal in the coming days. Other issuers, however, are said to be holding off from confirming mandates given the redoubling of risk aversion in the market.