The Covered Bond Report www.coveredbondreport.com November 2011 Australia CBPP2 CEE Debuts under fi re ECB straitjacketed Beyond the crisis Covered bonds? Highly rated covered bonds backed by mortgages Average LTV of 60.5% Match-funded structure Core capital ratio of 18.6% Largest mortgage bond issuer in Europe nykredit.com/ir Figures as of 17 March 2011 The Covered Bond Report CONTENTS 11 FROM THE EDITOR 3 Lands of opportunity (P8FTUBOEHSPXVQXJUIUIFDPVOUSZ±CVU QFSIBQTOPUUIFDPVOUSZZPVXFSFFYQFDUJOH Monitor LEGISLATION & REGULATION 4 Senate bill gives US momentum 7 *OEJBSPBENBQ -BCFMVOWFJMFE -VYFNCPVSHESBGU 4USVDUVSFEJTTVBODF "GSJDBO¾STU *DFMBOEJDSFUVSO RATINGS 12 S&P methodology helps resilience 0OEJTDSFUJPO *UBMZBDDFTTLFZ %FYJBCSFBLVQ MARKET 16 Aussie openers under fire $#11TUSBJUKBDLFUFE .BSLFUNBLJOH 4XFEFTUSBWFM 'SFODIFYQBOE $PPQEFCVUT /PSE-#BJSDSBGU¾STU LEAGUE TABLES 23 Euro, multi-currency benchmarks FULL DISCLOSURE 48 47 You are cordially invited… "#*"'.&.JMBO &$#$#BSDFMPOB WEQ'SBOLGVSU November 2011 The Covered Bond Report 1 The Covered CONTENTS Bond Report 24 Cover Story 24 For a few dollars more? &VSPQFBOJTTVFSTIFBEJOHBDSPTTUIFQPOEJOTFBSDI PGEPMMBSTIBWFOPUGPVOEUIF64BTXFMDPNJOH BTBOUJDJQBUFE#VUXJUIBDPWFSFECPOECJMMCFJOH JOUSPEVDFEJOUIF4FOBUF "VTUSBMJBOTVQQMZQPUFOUJBMMZ DPNQMFNFOUJOH$BOBEJBOTVDDFTT BOEJOEFYFMJHJCMF JTTVBODFCFJOHFYQMPSFE JTTVFSTDPVMEZFUSFBQUIF SFXBSETPGHPJOHXFTUSusanna RustSFQPSUT ANALYSE THIS 30 Sovereign belief undermined 3BUFTJOWFTUPSTBSFJODSFBTJOHMZWJFXJOH&VSPQFBO 30 HPWFSONFOUCPOETBTBOVOTFDVSFEDSFEJU XJUIDPWFSFE CPOETUSBEJOHUJHIUFSUIBOTPWFSFJHOEFCUJODPVOUSJFT TVDIBT"VTUSJBBOE*UBMZ.PSHBO4UBOMFZµTLeef Dierks and Jason SomervilleFYQMPSFUIFFWPMWJOHEJTUPSUJPOT BOEPQQPSUVOJUJFTUIFTFIBWFUISPXOVQ LEGISLATIVE ISSUES 36 CEE beyond the crisis "QPQVMJTU)VOHBSJBOMBXIBTUISFBUFOFEMPOHUFSN DPOTFRVFODFTGPSDPWFSFECPOET CVUFMTFXIFSFJO DFOUSBMBOEFBTUFSO&VSPQFDPOTUSVDUJWFSBUIFSUIBO DPOUSPWFSTJBMBNFOENFOUTBSFQFOEJOH*OEFFE CSFBLUISPVHIJTTVFTGSPNUIF$[FDI3FQVCMJD 3PNBOJB BOE4MPWFOJBDPVMENBLFBCBOOFSZFBSGPSUIF SFHJPO Maiya Keidan SFQPSUT LEGAL BRIEF: US DOCS & PROCESS 42 Papers, please 8IJMFUIF64JTSFHBSEFEBTBMBOEPGPQQPSUVOJUZCZ 36 NBOZOPO64JTTVFST EPDVNFOUBUJPOSFRVJSFNFOUTIBWF DBVTFEIFTJUBUJPO)FSF Jerry Marlatt TFOJPSPGDPVOTFM BU.PSSJTPO'PFSTUFS EFUBJMTUIFPQUJPOTBOETUFQT OFDFTTBSZGPSBTVDDFTTGVMJOUSPEVDUJPOJOUPUIF64 2 The Covered Bond Report November 2011 FROM THE EDITOR Lands of opportunity o West, young man, go West and grow up with the country.” This famous exhortation — widely attributed to 19th century newspaper editor Horace Greeley — has been “Gtaken up with gusto by European covered bond bank- ers. Seeking to grab a share of a market built on an $11tr mortgage industry, they have travelled across the pond in the hope that a US covered bond market will be born, accompanied by European issuers eager to establish a transatlantic trade. A new Senate initiative to introduce legislation is an- other step towards this goal, but with a key regulator — the Federal Deposit Insurance Corporation — against it and an election year imminent, these hopes could be dashed. The Covered Is the European industry condemned to a life of mis- Bond Report ery, its fate in the hands of euro-zone politicians pre- varicating to such an extent that even a new European www.coveredbondreport.com Central Bank covered bond purchase programme can- Editorial not rouse issuance? US targeted dollar deals will provide Managing Editor Neil Day some business, but as disappointing Australian debuts +44 20 7415 7185 have shown, any such relief may be fleeting. [email protected] Could developing or emerging markets provide cause Deputy Editor Susanna Rust [email protected] for hope? Not if common reactions to such enquiries — Reporter Maiya Keidan “Pah!” or “Meh!” — are to be believed. [email protected] True, some countries will take years to generate any- thing like the kind of volume to get excited about in a Design & Production Creative Director: Garrett Fallon context where Eu1bn has been a typical benchmark size. Designer: Kerry Eggleton A reform of Romania’s covered bond law, for example, is expected to yield — drum roll, please — perhaps Eu7bn, Printing according to the CEO of one local bank. Bishops But when the countries in question are Brazil or In- Advertising Sales dia, the calculations begin to make sense. Santander was [email protected] widely scorned for the price it paid for some Latin Amer- ican assets a decade or so ago, but the naysayers have Subscriber Services since been silenced. [email protected] Of course, a sensitivity to local customs may be re- Editorial quired in these new territories. One rating agency re- [email protected] alised, for example, that a thorough legal analysis of foreclosure procedures in an unnamed Southeast Asian The Covered Bond Report is a country became redundant when it emerged that it was Newtype Media publication standard practice to bribe judges. 25, Finsbury Business Centre But hopefully bankers will not need to pack one item 40 Bowling Green Lane that was standard issue for HSBC’s early emerging mar- London EC1R 0NE ket pioneers: a gun. +44 20 7415 7185 Neil Day, Managing Editor November 2011 The Covered Bond Report 3 MONITOR: LEGISLATION & REGULATION Legislation & Regulation HAGAN-CORKER ACT Senate bill gives US push momentum A bill introduced by Senators Kay Hagan A covered bond analyst said he was and Bob Corker has been welcomed for surprised by the absence of “pro-FDIC” giving renewed momentum to a push concessions given discouraging com- for covered bonds in the US, although ments he had heard about the strength of market participants have warned against the FDIC’s lobbying in the Senate. over-optimism, particularly in light of A Hagan staff er told Th e Covered continued FDIC concerns. Bond Report that the FDIC had neither Th e two introduced the United States indicated support nor opposition to the Covered Bond Act of 2011 on 9 Novem- bill, saying that the FDIC is always con- ber with co-sponsors Democrat Chuck cerned about its repudiation and the Schumer (NY) and Republican Mike treatment of assets in the event of a bank Crapo (ID). Th e four Senators are mem- failure. He said that the Senators would bers of the Senate Banking Committee, work with the FDIC going forward, as the Senate body that proponents of the as- well as Senate Banking Committee chair- set class have been hoping would take up man Johnson, with a hearing on the bill the covered bond cause aft er a similar bill being targeted. was passed by the House Financial Serv- ices Committee in June. Th e Senate bill is “The only dark aimed at creating a legislative framework cloud is the FDIC for covered bonds to expand the funding options of US fi nancial institutions. perspective” “Th e US lags behind its global peers in the development of a covered bond “Now we have legislation in both the market because we lack a legislative House and Senate with wide bi-partisan framework for issuers and investors,” said support,” he said. “That’s a rare thing in Hagan, a member of the Senate Banking Congress these days and a good sign for Committee. “With a legislative framework the prospects of the legislation going in place, US fi nancial institutions will have forward.” Kay Hagan: “The US lags behind a powerful tool that can be used to fund Bert Ely, a financial institutions and its global peers” loans to small businesses and households.” monetary policy consultant who also Corker led a previous Senate covered testified at the March HFSC hearing, bond initiative, while Schumer earlier that it might be a little bit of a token said that although the Senate initia- this year said that he could introduce gesture,” said Ralph Daloisio, managing tive is welcome, it might not move too such a bill aft er seeing Republican Con- director, Natixis, and a member of the quickly and further progress in the gressman Scott Garrett, alongside Demo- American Securitisation Forum who tes- House of Representatives is probably crat Carolyn Maloney, introduce legisla- tifi ed at a HFSC hearing in March. “But necessary first. tion into the House of Representatives. this looks much more choreographed— “Th e fact that Garrett got his bill Th ere had been fears that the Federal very closely mirroring what came out of through the HFSC started to be some- Deposit Insurance Corporation’s concerns the House Financial Services Committee thing of an impetus to get the ball mov- regarding covered bonds and its lobbying and with four sponsors, all members of ing into the Senate,” he said. “It may still against Garrett’s legislation might have the Senate Banking Committee. It sounds have to see the House fl oor fi rst and if the dissuaded Senate Banking Committee like [Senate Banking Committee chair- House passes the bill that ups the pres- members from moving forward. man] Tim Johnson is going to have to put sure on the Senate.” Market participants said that they were it on the agenda. Fitch said that the Senate legislation pleased to see the bill being introduced. “Th e only dark cloud is the FDIC per- “generally sticks closely” to the House leg- “A few weeks ago we realised some- spective,” he added. “Th ey are not very islation, aside from expanding the defi ni- thing was going to materialise in the Sen- happy it’s come out in this way with the tion of eligible issuers and changing the ate Banking Committee, but we thought four Senators supporting it.” proposed regulator for certain issuers. Q 4 The Covered Bond