International Financing Review September 8 2018 39BONDS COVERED BONDS
local senior unsecured market last Tuesday
with a A$400m (US$288m) three-year
floating-rate note which paid a premium for
parent AMP Group’s prominent role in
Australia’s financial scandals.
The new notes, arranged by a four-strong
syndication team comprising ANZ, Citigroup,
CBA and NAB, were upsized from an
indicative A$200m minimum issue size and
printed inside 110bp area guidance at three-
month BBSW plus 108bp.
Pricing was in line with AMP Bank’s
secondary curve but this has moved out
more than its peers since the start of the
Royal Commission into the Australian
financial sector.
AMP Bank’s new notes paid a 36bp
pick-up over the 72bp spread for the
A$300m three-year FRN from higher-rated
Oversea-Chinese Banking Corp, Sydney
branch (Aa1/AA–/AA–), issued a week earlier.
In comparison, AMP Bank, a wholly
owned subsidiary of AMP Group, sold a
A$500m three-year FRN in September 2017
at three-month BBSW plus 75bp, a day after
OCBC Sydney’s A$200m three-year floater
priced just 15bp tighter at 60bp over bank
bills.
AMP, which provides superannuation and
investment products, insurance, financial
advice and banking products in Australia
and New Zealand, has suffered more than
most from widespread homegrown
scandals.
In April, chief executive Craig Meller and
chairman Catherine Brenner resigned after
AMP executives admitted in testimony that
the company had lied to the corporate
watchdog for almost a decade to cover a
practice of charging customers for services it
did not provide.
S&P subsequently placed AMP on credit
watch negative as it assesses the
reputational damage to AMP’s brand, while
Moody’s declared “AMP governance failures
alleged at the Royal Commission into the
financial sector are putting additional
pressure on its rating”.
In June, investors appeared to push back
on AMP Group’s debut Swiss bond offering,
a SFr110m (US$112m) 0.75% 4.5-year note
which priced 85bp wide of mid-swaps, well
outside initial 65bp–70bp soundings.ASB FIVE-YEAR NETS NZ$450mASB BANK (A1/AA–/AA–) priced a NZ$450m
(US$295m) 3.31% five-year note offer last
Tuesday within 100bp-105bp guidance at
mid-swap plus 102bp.
ASB’s Australian parent CBA was sole lead
manager.
The last New Zealand major bank local
five-year was identically rated Westpac New
Zealand’s NZ$550m MTN on March 21,which pays a 3.7% coupon and priced 100bp
wide of mid-swaps.
ASB’s next issuance is likely to be in
Europe where it begins investor meetings
on September 14 for a potential euro-
denominated covered bond offering
arranged by Barclays, CBA, DZ Bank and UBS.COVERED BONDS
EUROS
RARE SPANISH COVERED SUPPLY DRAWS
IN LARGE CROWDSDEUTSCHE BANK SAE broke the drought in
Spanish covered bond supply last Tuesday,
bringing a €1bn March 2024 that attracted
more than €1.35bn of demand, the biggest
book of the week.
The lender opened books on the issue,
rated Aa1, at 30bp area over mid-swaps via
BBVA, CaixaBank, Credit Agricole, Deutsche Bank
and Lloyds. It was the first Spanish covered
since a €500m May 2025 for Cajamar Caja
Rural SCC priced in early June.
Momentum was quick to build, with
demand easily eclipsing that seen on other
competing supply from the likes of NIBC,
Aareal Bank and Commerzbank, meaning
that pricing could be revised 3bp tighter to
27bp over mid-swaps.
“It’s been very, very quiet this year in
terms of Spanish supply,” said a lead.
“We’ve only seen a handful of trades and
none of the big guys, apart from CaixaBank
and Bankinter, have come to market.”
Spanish covered supply in 2018 has
reached only €3.88bn compared with the
€24.1bn for German banks, for example.
“We therefore had to be a lot more
creative to come up with fair value,” the
lead said.
“The bigger banks’ spreads are very
squeezed. You have Santander Spain trading
through Santander UK, which doesn’t really
make sense.”
Deutsche Bank’s January 2023 was quoted
at 13.5bp and counting for the curve
extension - the deal will be the issuer’s
longest outstanding covered bond - and the
lead put fair value at around 20bp.
“It offered 10bp of new issue concession
at the starting point, which makes sense
given that core issuers have been offering
between 6bp and 8bp.”
While the concession was high compared
with what core issuers have been paying, it was
a lot smaller than Italian banks have had to pay
as they continue to suffer from sovereign-
related volatility. National champion IntesaSanpaolo paid a mid-teens concession for a
€1bn seven-year in early July, for example.
“Italian issuers are starting very
differently but then Spain has definitely
detached itself from Italy,” the lead said.
“We’re seeing it in the [government]
market, we’re seeing it in financials. It’s not
linear anymore. A lot of accounts had it the
other way around last year and were saying
they would rather buy Italy than Spain. It’s
the other way around now.”
Momentum was also helped by the
attractive relative value play of around 5bp-
6bp offered by the bond versus the sovereign,
which was a trigger to buy for some accounts.NIBC CPT COVERED GOES SLOW AGAINST
BUSY BACKDROPDemand for a rare conditional pass-through
covered bond issue was slow to build last
week, with the book of some €800m for NIBC
BANK’s 10-year giving leads little leeway to
tighten pricing.
NIBC pioneered the CPT structure in 2013
as a way of bypassing expensive
overcollateralisation costs but still achieving
Triple A ratings.
It proved popular with lower-rated
peripheral banks as a way to overcome the
link to their standalone issuer default ratings.
The approach has come under fire at the
European level, however, with proposals to
impose a penalising risk-weight treatment for
covereds with long maturity extension features.
“The CPT format is definitely holding
some people back,” a lead banker said.
“At the end of the day, it definitely helps
if you bring a hard or soft bullet, and some
accounts, especially in Germany, are more
hesitant to buy into CPT.”
A draft report submitted by the European
Parliament’s Committee on Economic and
Monetary Affairs in August proposed a
gradual increase in risk weights for covered
issues with maturity extension provisions
beyond one year.
This would range from an additional 5% in
the case of an up to three-year extension to
as much 20% for increases longer than 10
years, according to ING analysts.
“The number of investors that can buy
CPTs is much smaller than for other
structures,” another lead said.
“Also, NIBC is a smaller bank. We were
wondering whether we would get outright
push-back because of the EC changes, but
we didn’t really get that as such. The noise
obviously doesn’t help but there wasn’t
push-back as such because of the structure.”
The spread on the AAA/AAA rated €500m
no-grow 10-year via ABN AMRO, ING, LBBW,
NIBC Bank and UniCredit was fixed at 15bp
over mid-swaps, 2bp tighter than guidance,
offering 6bp of concession.6 Bonds 2250 p25-55.indd 39 07/09/2018 19:30:00