Spain

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.

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.