DOCSLIB.ORG

BAWAG Group AG Issuer Profile

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
BAWAG Group AG Issuer Profile Erste Group Research Erste Group Research Issuer Profile | Financials & Covered Bonds | Austria 30. April 2019 BAWAG Group AG Analyst: Heiko Langer Bank with a focus on retail and corporate customers [email protected] in Austria and selected core markets Key Facts 31.12.2018 Company Profile Total Assets EUR 44.7bn BAWAG Group AG (“BAWAG Group”) has access to a broad base of retail Earnings Result EUR 436.5mn and corporate customers in Austria. In recent years the group made several CET1 Ratio 14.5% acquisitions in order to expand its operations into Germany as an additional Capital adequacy ratio 16.4% core market. In addition the group is active in selected developed markets. Rating Moody's (current) The history of BAWAG Group dates back to the year 1922 when it was Outlook stable founded as a bank for trade unions and consumer cooperatives. In 2007 the A2 Long Term Unsecured bank was taken over by a consortium led by the Cerberus Group. BAWAG's Rating Fitch (current) stock exchange listing in 2017 represented a further milestone in the bank's Outlook stable Long Term Unsecured A- strategic development. Earnings Result Public Cover Pool 31.12.2018 In FY 2018 the BAWAG Group posted net earnings of EUR 436.5mn, which Moody's Rating Aaa represents a decline of 2.8% compared to FY 2017. However, earnings Cover Pool EUR 1.1 mn before taxes grew considerably by 14.4% to EUR 572.7mn. The increase Covered Bonds EUR 0.9mn was attributable to higher operating earnings and lower risk provisions. As a OC 22% result, the cost-income ratio improved to 44.2% year-on-year. The FY 2018 result markedly exceeded the targets set by the bank and guidance for 2019 Mortgage Cover Pool 31.12.2018 and 2020 was adjusted accordingly, primarily with respect to earnings and Moody's Rating Aaa costs. Cover Pool EUR 2.3bn Covered Bonds EUR 2.0bn Issuer Rating OC 12% BAWAG P.S.K. as the BAWAG Group’s main issuing company for covered and unsecured bonds is rated 'A2' (stable) by Moody's and 'A-' (stable) by Ticker Fitch. Both agencies praise the bank’s strong profitability and efficiency, but BAWAG <corp> BG AV <equity> they also see risks in its growth strategy and its implementation. As an issuer of securities affecting the bank's capitalization, BAWAG Group AG Content has a Moody's rating for its additional tier 1 ('Ba1') and subordinate debt Bank with a focus on retail and corporate securities ('Baa2'). customers in Austria and selected core markets ......................................................... 1 Covered Bonds Company Profile............................................ 2 Earnings Result ............................................. 6 BAWAG P.S.K. issues covered bonds which are either collateralized by Issuer Rating ................................................. 7 public sector or mortgage cover pools. Moody's assigns a rating of 'Aaa' to BAWAG as an Issuer .................................... 9 both types of covered bond programs. Mortgage covered bonds represent Mortgage Covered Bond ............................. 10 the lion's share (68%) of the bank's outstanding covered bonds. Both cover Public Sector Covered Bond ....................... 11 pools contain exclusively Austrian assets. Major Markets & Credit Research Gudrun Egger, CEFA (Head) Financials & Covered Bonds Heiko Langer Carmen Riefler-Kowarsch Note: Past performance is not necessarily indicative of future results.. Major Markets & Credit Research Page 1 For the exclusive use of Erste Group Client (Erste Group) Erste Group Research Issuer Profile | Financials & Covered Bonds | Austria 30. April 2019 Company Profile Business activities Banking services for a broad BAWAG was established in 1922 as a bank for trade unions and consumer swath of the population cooperatives, in order to aggregate and administer their funds. Oesterreichische Postsparkasse (P.S.K., Austrian Postal Savings Bank) was founded in 1883. The main goal was to use 4,000 post office branches to provide access to banking services to a broad swath of the population. In 2005 BAWAG and P.S.K. merged and formed BAWAG P.S.K., which is active in both retail and commercial banking. After running into severe financial difficulties in 2006 (triggered by the Repositioning of the bank after collapse of US futures broker Refco), BAWAG P.S.K. was taken over in 2007 takeover 2007 by a consortium under the leadership of US private equity company Cerberus Capital Management L.L.P. After the change in ownership a new business strategy was worked out, and the bank's repositioning with a focus on the Austrian retail, corporate and wholesale business was immediately set into motion. In 2012 Golden Tree Asset Management purchased a 39.46% stake in BAWAG P.S.K. in the course of a capital increase; Cerberus remained the bank's controlling shareholder with a stake of 51.78%. Listing of BAWAG Group in In 2017, BAWAG Group AG, the holding company of BAWAG P.S.K., was 2017 listed on the stock exchange. The bank's business strategy which up until then had been focused on Austria was expanded to encompass the entire DACH region. In this context BAWAG Group acquired Suedwestbank as well as Deutscher Ring Bausparkasse (nowadays start:bausparkasse) in Germany. Apart from this BAWAG Group has another two banking subsidiaries in Austria, easybank and start:bausparkasse. Ownership structure of BAWAG Group AG March 2019 Golden Tree 26% Free Float 39% Cerberus 35% Source: BAWAG Group AG, Erste Group Research Major Markets & Credit Research Page 2 For the exclusive use of Erste Group Client (Erste Group) Erste Group Research Issuer Profile | Financials & Covered Bonds | Austria 30. April 2019 In its core markets of Austria and Germany as well as in other developed markets, BAWAG is focused on retail and commercial banking. In addition to this, the group has an international business segment active in corporate finance, as well as in commercial real estate and portfolio financing. Distribution of the loan portfolio in EUR bn 10 9 2018 2017 8 7 6 5 4 3 2 1 0 BAWAG P.S.K. easygroup International DACH Südwestbank Treasury Corporate Retail Business Corporates & Services & Center Public Sector Markets Source: BAWAG Group, Erste Group Research The operations of BAWAG Group are divided into five business segments: Termination of cooperation with BAWAG P.S.K. Retail: BAWAG P.S.K. Retail serves 1.2mn retail the Austrian Post Office customers and SMEs in Austria. Through its branch office network BAWAG P.S.K. Retail offers savings, investment and insurance products to its customers. An unbundling agreement with Austria's Post Office was signed in 2018. The aim is the gradual termination of the cooperation with the branch network of the Austrian Post Office. This will be offset by forging ahead with the expansion of the banking group's proprietary branch network. Until the end of 2019 the bank plans to operate a branch network with up to 100 branch offices in Austria. Pre-tax earnings grow by 25% in In FY 2018 pre-tax earnings grew by 25% to EUR 243.2mn. Thus FY 2018 the segment contributed 42% to the group's consolidated pre-tax earnings. While net interest income and net commission income increased by 2.2% and 3.0% respectively, the sale of non- performing loans in 2018 also had a positive impact on operating earnings, which rose by 5.7% overall. A 7.5% reduction in operating expenses helped to boost pre-tax earnings as well. easygroup: with 1.4mn customers, easygroup represents the Austria's largest direct bank largest direct banking group in Austria. It combines all distribution channels which are independent of branch offices. Apart from traditional current accounts, savings accounts and loans, easygroup also offers car leasing products. The sub-divisions of easygroup include easybank, easyleasing, easypay, start:bausparkasse and an international retail business. Major Markets & Credit Research Page 3 For the exclusive use of Erste Group Client (Erste Group) Erste Group Research Issuer Profile | Financials & Covered Bonds | Austria 30. April 2019 easygroup contributes 25.3% to In FY 2018 pre-tax earnings increased by 5.7% to EUR 145.1mn, which represents 25.3% of consolidated pre-tax earnings. In terms consolidated pre-tax earnings of core operating earnings a mixed picture emerged. On the one hand, net interest income decreased by 3.8% due to the shrinking international mortgage portfolio. On the other hand, net commission income more than doubled due to the acquisition of the credit card business of PayLife in 2017. Growth in operating income of 10.6% was offset by an increase in operating expenses of 17.4%, which was related to the acquisition of PayLife and Deutscher Ring Bausparkasse. International Business: the core areas of this segment are international corporate finance and real estate financing outside of the DACH region, with a focus on Western Europe and the US. Strong growth in business The volume of business of the International Business segment grew volume quite strongly by 21.5% in FY 2018. The international real estate financing sub-segment contributed the bulk of this growth. 2018 Pre- tax earnings rose by 46.7% to EUR 122.9mn. In addition to an increase in operating earnings by 11.9%, the overall result was boosted by a large decline in risk provisions. DACH Corporate and Public Sector segment: in the corporate business the bank is focusing on optimizing its loan portfolio. It is planned to expand exposure to customers with investment grade ratings or strong collateral. With respect to exposures to customers with non-investment grade ratings the group targets favorable risk- return profiles. New business is focused on refinancing, syndication and restructurings as well as commercial real estate financing. The public sector business is focused on payment services and lending.
Load more

Recommended publications
  • What Are Covered Bonds and Why Should Anyone Care?
    What are Covered Bonds and Why Should Anyone Care? Michael S. Gambro, Anna H. Glick, Frank Polverino, Patrick T. Quinn, and Jordan M. Schwartz The authors believe that, given the current political impetus to promote lower costs of funds and greater liquidity for mortgage nancing and a diversity of funding sources, there will be rapid developments in the area of covered bonds. Covered bonds are a form of long-term secured nanc- the issuer’s credit rating. Covered bonds may be issued ing that has been used in Europe for centuries but have pursuant to a specic statutory framework or on a not previously gained popularity in the U.S. credit contractual basis. A structured nance legal structure markets. To date, only two issuers in the United States may be utilized in jurisdictions like the U.S. that lack a have issued covered bonds. However, in light of the statutory framework, or for transactions that do not t recent turmoil in the credit markets, covered bonds are within an existing statutory framework. being promoted as a technique to stimulate the capital markets and provide a long-term funding source for mortgage loan originators. Comparison of Covered Bonds and Mortgage- On July 15, 2008, a nal Covered Bond Policy Backed Securities Statement (the ‘‘Policy Statement’’) was issued by the Federal Deposit Insurance Corporation (the ‘‘FDIC’’).1 Although both mortgage-backed securities (‘‘MBS’’) In addition, on July 28, 2008, the United States Depart- and covered bonds are potential sources of long-term ment of the Treasury issued a best practices guide funding for mortgage loans, there are several signi- intended to ‘‘encourage growth of the covered bond cant dierences between them: market in the United States.’’2 Although no specic E In a typical MBS transaction, the mortgage loans covered bond statute exists in the United States at this are generally treated as having been sold under time, on July 30, 2008, Congressman Scott Garrett (R- current U.S.
    [Show full text]
  • Mortgage Covered Bonds
    COVERED BONDS CREDIT OPINION Deutsche Pfandbriefbank AG - Mortgage 12 July 2019 Covered Bonds New Issue Update to New Issue Report, reflecting data as of 31 March 2019 - German covered bonds Ratings Closing date Exhibit 1 September 2001 Cover Pool (€) Ordinary Cover Pool Assets Covered Bonds (€) Rating 19,855,385,490 Commercial mortgage loans 17,159,274,896 Aa1 TABLE OF CONTENTS Ratings 1 Source: Moody's Investors Service Summary 1 Credit strengths 1 Summary Credit challenges 2 The covered bonds issued by Deutsche Pfandbriefbank AG (the issuer) under the Deutsche Key characteristics 3 Pfandbriefbank AG - Mortgage Covered Bonds programme are full recourse to the issuer and Covered bond description 3 are secured by a cover pool of assets consisting of commercial assets (73.7%), multi-family Covered bond analysis 4 assets (19.4%), supplementary assets (6.8%) and residential assets (0.1%). Cover pool description 8 Cover pool analysis 11 Credit strengths include the full recourse of the covered bonds to the issuer and support Methodology and monitoring 13 provided by the German legal framework for Pfandbriefe, which provides for the issuer's Appendix: Income underwriting and regulation and supervision. valuation 14 Moody's related publications 15 Credit challenges include the high level of dependency on the issuer. As with most covered bonds in Europe, there are few restrictions on the future composition of the cover pool. 56.4% of the commercial mortgages have bullet repayment. Analyst Contacts Francesca Falconi +44.20.7772.1667 Our credit analysis takes into account the cover pool's credit quality, which is reflected in Analyst the collateral score of 6.8%, and the current over-collateralisation (OC) of 17.1% (on an [email protected] unstressed present value basis) as of 31 March 2019.
    [Show full text]
  • Moody's Reviews Pfandbriefe of Several German Landesbanken and Their Subsidiaries
    Announcement: Moody's reviews Pfandbriefe of several German Landesbanken and their subsidiaries Global Credit Research - 06 Jul 2011 London, 06 July 2011 -- Moody's Investors Service has today placed the following covered bonds on review for downgrade, prompted by its review of the respective issuers, implemented on 1 July 2011: - Bayerische Landesbank's mortgage Pfandbriefe: Aaa placed on review for downgrade; previous rating action 21 August 1998, Aaa assigned; - Bayerische Landesbank's public-sector Pfandbriefe: Aaa placed on review for downgrade; previous rating action 21 August 1998, Aaa assigned; - HSH Nordbank AG's mortgage Pfandbriefe: Aaa placed on review for downgrade; previous rating action 7 December 2010, Aaa assigned; - HSH Nordbank AG's public-sector Pfandbriefe: Aaa placed on review for downgrade; previous rating action 18 May 2010, Aaa confirmed; - HSH Nordbank AG's ship Pfandbriefe: A2 placed on review for downgrade; previous rating action 5 May 2010, downgraded to A2; - WestLB's public-sector Pfandbriefe: Aaa placed on review for downgrade; previous rating action 12 May 2006, Aaa assigned; - Deutsche Kreditbank AG's mortgage Pfandbriefe: Aaa placed on review for downgrade; previous rating action 15 July 2009, Aaa assigned; and - Deutsche Kreditbank AG's public-sector Pfandbriefe: Aaa placed on review for downgrade; previous rating action 5 December 2006, Aaa assigned. The ratings assigned to the covered bonds issued by other Landesbanken and their subsidiaries are not affected by this rating action. RATINGS RATIONALE The above reviews were prompted by the review of the respective issuer ratings, see press release "Moody's reviews ratings of German Landesbanken", published 1 July 2011.
    [Show full text]
  • Covered Bonds As a Source of Funding for Banks' Mortgage Portfolios
    COVERED BONDS AS A SOUrcE OF Funding FOR BaNKS’ MORTGAge PORTFOLIOS BANK OF CANADA • FinANCIAL SYSTEM REView • JUNE 2018 37 Covered Bonds as a Source of Funding for Banks’ Mortgage Portfolios Toni Ahnert Covered bonds funded only about 3 per cent of the assets of the largest banks and 9 per cent of Canadian mortgages in 2017. Instead, banks have been relying primarily on relatively cheap government-guaranteed mortgage funding options. An increasing portion of mortgages are uninsured and not eligible for government-guaranteed funding, creating the need for alternative funding sources. Covered bonds may fill part of this need, helping to generate a diversified and stable funding mix for mortgages. Overcollateralization requirements and dynamic replenishment of the col- lateral pool can increase risks to unsecured creditors. This could add to the fragility of a bank in the face of negative shocks, with potential spill- overs to other parts of the financial system. Several policy tools are available to help balance the costs and benefits of covered bonds. These include simple issuance caps and adjustments to the pricing of deposit insurance premiums, as well as other types of prudential regulation. Introduction Banks’ choices for funding mortgages and other business activities have an important effect on how efficiently they provide banking services and how effectively they manage risks to their own business and to the financial system. Canadian banks typically use a broad array of funding sources, including equity, deposits and wholesale funding instruments (Chart 1).1 The terms of funding sources differ, ranging from short-term deposits and money market instruments to longer-term funding, including covered bonds and 5- and 10-year debentures.
    [Show full text]
  • COVERED BONDS: a Primer
    COVERED BONDS: A Primer By Charles D. Lansden As the securitization of residential mortgage loans ground to a halt during the current credit crisis, the Department of the Treasury and the Federal Deposit Insurance Corporation published guidance for the issuance of covered bonds as an alternative means of financing residential mortgages. A covered bond is a debt instrument that is secured by a pledge of a segregated pool of assets (a “cover pool”), but is paid back from an issuer’s cash flow rather than from the assets themselves. A depository institution may directly issue covered bonds or issue a mortgage bond to a bankruptcy remote special purpose vehicle that, in turn, issues covered bonds. Both the Treasury and the FDIC currently restrict the cover pool to residential mortgages, but each of these institutions anticipates that the development of a U.S. covered bond market could lead to other as-set classes serving as collateral in cover pools. There are significant differences between covered bonds and mortgage-backed securities: (i) a covered bond remains on the issuer’s balance sheet; (ii) an investor has recourse against both the issuer and the cover pool; (iii) principal and interest on the covered bond are paid from an issuer’s cash flow; (iv) non-performing assets in the cover pool can be replaced; and (v) guaranteed investment contracts limit the prepayment risk for covered bonds in the event of the issuer’s default. Given that a covered bond is the direct obligation of an issuer, potential investors were concerned about their access to the cover pool upon the issuer’s failure.
    [Show full text]
  • Green Covered Bonds: Building Green Cover Pools Covered Bonds Are an Ideal Tool to Finance Low Carbon Infrastructure, Having Been Used in Other Public Priority Areas
    BRIEFING PAPER Green Covered Bonds: building green cover pools Covered bonds are an ideal tool to finance low carbon infrastructure, having been used in other public priority areas. Identifying existing green cover pools and developing frameworks for other low carbon assets will help scale up investment. The first green covered bonds Covered Bonds issuance (2011–2015) were issued in 2016 The green bonds market has seen increased 800 diversification in 2016. One of the new green debt products that entered the market was the first green covered bond issued in Germany. 600 The Bank of China also issued a ‘dual recourse’ green bond in November 2016 (not technically a ‘covered’ bond given the lack of 400 dedicated legislation). The USD 500m issue Billions (EUR) is the first of its kind, not only because of the dual recourse structure, but also due to the cover pool, which is made up of Chinese 200 climate-aligned bonds on the banks’ balance sheets. The bonds are part of the ChinaBond China Climate Aligned Bond Index, developed 0 by CCDC, CECEP and Climate Bonds. 2011 2012 2013 2014 2015 Covered bonds support cheaper • Public Sector • Mortgage • Ships • Mixed Assets lending in public sector priority Source: European Covered Bond Council Fact Book, 2016 areas Covered bond markets have proven to be a reliable source of long-term financing for Covered bonds are highly-regulated securities with superior credit ratings and banks to on-lend to specific priority sectors, in lower funding costs than unsecured debt, thanks to a dual recourse structure where bond particular housing and public infrastructure.
    [Show full text]
  • The Covered Bond Market1
    Frank Packer Ryan Stever Christian Upper +41 61 280 8449 +41 61 280 9615 +41 61 280 8416 [email protected] [email protected] [email protected] The covered bond market1 The covered bond market offers investors an alternative to developed country government securities. The valuation of covered bonds is complex. While there is some evidence of differences in the pricing of these bonds by nationality of issuer, these appear to be only weakly related to differences in the respective legislative frameworks. Recent cases show the pricing of covered bonds to be robust to idiosyncratic shocks to issuer credit risk as well as more systemic shocks to the value of cover pools. JEL classification: G11, G12, G15. Over the past decade covered bonds, or securities issued by financial institutions that are secured by dedicated collateral, have become one of the largest asset classes in the European bond market and an important source of finance for mortgage lending. The collateral, or “cover pool”, is usually put together so as to obtain the highest possible triple-A credit rating. As a consequence, covered bonds offer an alternative to developed country government securities for bond investors interested in only the most highly rated securities. Drawing on the BIS international debt securities statistics and other data sources, this feature analyses the recent evolution of the covered bond market. Exploring the main issues involved in assessing the risk of covered bonds, the feature also documents significant divergences among the major rating agencies. An examination of the determinants of covered bond prices suggests that, while the nationality of the issuer matters, the related differences are generally small.
    [Show full text]
  • Bawag Group Ag Quantitative Disclosure Report According to Regulation (Eu) No. 575/2013 (“Crr”)
    QUANTITATIVE DISCLOSURE BAWAG GROUP AG QUANTITATIVE DISCLOSURE REPORT ACCORDING TO REGULATION (EU) NO. 575/2013 (“CRR”) 2019 1 QUANTITATIVE DISCLOSURE LIST OF TABLES Table 1: Total assets ......................................................................................................................................................6 Table 2: Total liabilities and equity..................................................................................................................................7 Table 3: Differences between accounting and regulatory scopes of consolidation and (…) (1/2) ......................................8 Table 3: Differences between accounting and regulatory scopes of consolidation and (…) (2/2) ......................................9 Table 4: Outline of the differences in the scopes of consolidation (entity by entity).........................................................10 Table 5: Scope of consolidation (IFRS, CRR) (1/3) .......................................................................................................11 Table 5: Scope of consolidation (IFRS, CRR) (2/3) .......................................................................................................12 Table 5: Scope of consolidation (IFRS, CRR) (3/3) .......................................................................................................13 Table 6: Main features, full terms and conditions of capital instruments ........................................................................14 Table 7: Overview of RWAs
    [Show full text]
  • New European Covered Bond Framework
    Latham & Watkins Capital Markets Practice April 22, 2019 | Number 2488 We’ve Got You Covered: New European Covered Bond Framework The new framework should simplify the path for issuers seeking to market European covered bonds to investors in the US. Key Points: The new framework will create minimum product and technical standards for covered bonds, focusing on high-quality cover pool assets. Covered bonds, which are not subject to “bail-in” powers, will have reinforced transparency and investor protections. Spanish covered bond programs will require the most updating, compared with the existing regime. Issuers should consider amending their documentation to facilitate marketing in the US. Covered bonds offer unique benefits to both issuers and investors. Banks and other credit institutions have historically relied on covered bonds as an inexpensive source of funding and have purchased them to use as eligible collateral with the Eurosystem credit window, while institutional investors have valued the favorable risk-weighting of these stable and secure instruments, which typically combine a bankruptcy-remote asset-backed security with the further support of a direct claim against the credit institution issuer1. To date, covered bonds have been issued either pursuant to long-standing statutory frameworks created by the national laws of several EU Member States or by more recent contractual arrangements developed by market participants. However, the liquidity of the European covered bond market has been complicated by such disparate legal
    [Show full text]
  • S&P Global Ratings' Covered Bonds Primer
    S&P Global Ratings' Covered Bonds Primer June 20, 2019 This covered bonds primer provides a comprehensive guide to the fundamentals and key features PRIMARY CREDIT ANALYSTS of the product. Antonio Farina Madrid Let's start with an obvious question… (34) 91-788-7226 antonio.farina @spglobal.com What Is A Covered Bond? Marta Escutia A covered bond is a debt instrument secured by a cover pool of assets. As long as the issuer is Madrid + 34 91 788 7225 solvent, it is obliged to repay its covered bonds in full on their scheduled maturity dates. If the marta.escutia issuer is insolvent, the proceeds from the cover pool assets will be used to repay the bonds. @spglobal.com Covered bonds were first introduced in Prussia in 1769 by Frederick the Great, and in Denmark in ANALYTICAL MANAGER 1797. France issued the first "obligations foncieres" in 1852. Despite such a long history, it was Barbara Florian not until the end of the twentieth century that the size and geographic scope of this market Milan broadened considerably, boosted by the introduction of "jumbo" covered bonds in 1995, the (39) 02-72111-265 introduction of the euro in 1999, and the approval of dedicated legislative frameworks in a number barbara.florian @spglobal.com of new countries. Figure 1 www.spglobal.com/ratingsdirect June 20, 2019 1 S&#38;P Global Ratings&#39; Covered Bonds Primer Key Features Of Covered Bonds - The bond is issued by--or bondholders otherwise have full recourse to--a credit institution which is subject to public supervision and regulation.
    [Show full text]
  • Frequently Asked Questions About Covered Bonds
    FREQUENTLY ASKED QUESTIONS ABOUT COVERED BONDS bolstering its popularity. See “Covered Bond Background Structure Outside of the United States.” European What are covered bonds? issuances remained at historic lows in 2014, and issuances of covered bonds into the United States by Covered bonds are debt obligations that provide non‐U.S. issuers continued to drop dramatically in recourse to the issuer, usually a bank. Upon an issuer 2014 (to approximately $10 billion) as cross currency default, covered bond holders also have recourse to a swap costs made issuing bonds in USD less favorable. pool of collateral (known as the “cover pool”), which There has been some recovery in the issuance of is maintained separate from the issuer’s other assets. covered bonds into the United States in 2015 as cross What type of assets can make up the cover pool? currency swap costs have declined. The cover pool usually consists of high quality assets, How are covered bonds issued? including residential mortgages, public debt, or ship Covered bonds can be issued as a single issuance or loans. Cash, or cash equivalents, also may serve as as a program. Under the Securities Act of 1933 (the cover pool collateral. “Securities Act”), covered bonds are regulated as Are covered bonds a new product? securities and each issuance must be registered under Although relatively new to the United States, covered the Securities Act or exempt from registration. bonds are not a new product. Covered bonds have Covered bond programs issuing in the United States been used to raise capital in Europe since 1769, when often rely on the Rule 144A exemption; however, on the first covered bond was issued in Prussia to July 30, 2012, the Royal Bank of Canada obtained SEC finance agriculture.
    [Show full text]
  • Covered Bonds Update in the United States
    Covered Bonds Update in the United States October 21, 2020 Jerry Marlatt Laura Drumm Partner RBC Capital Markets [email protected] [email protected] Background: What Are Covered Bonds? 2 What are Covered Bonds? Covered Bond Characteristics • Senior debt of a regulated financial entity • Generally not subject to bail-in • Secured by a pool of financial assets • Mortgage loans – residential or commercial • Public sector obligations • Ship loans • Protected from acceleration in the event of issuer insolvency • By statute or legal structure • Collateral is isolated from insolvency estate of the issuer • Collateral pays bonds as scheduled through maturity • A dynamic collateral pool – refreshed every month • Typically bullet maturity, fixed rate bonds • Repayment liabilities remain on the balance sheet of the originator • Most countries have statutes enabling covered bonds • Very strong implicit government support in many jurisdictions 3 Benefits to Issuing Banks Attributes of Covered Bonds • Lower funding cost than senior bank debt • Extension of WAM for bank funding • Typical maturities for covered bonds in the EU of seven years or more. • Diversification of funding base • Investors typically do not buy RMBS or senior bank debt • Critical funding source in Europe in the sovereign debt crisis • The market was functional throughout the crisis • Avoids “bail-in” risk • Mortgage modifications to accommodate borrower are easy; no competing interests • Brings mortgage finance out of the ‘shadow banking’ world • US legislation would level
    [Show full text]