| ICB launch gives birth to new market |
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| The successful €4 billion launch of the first Irish Covered Bond or Asset Covered Security (ACS) by DEPFA Bank, looks set to be followed by another issue in the second half of this year. |
WestLB is set to follow in DEPFA Bank’s footsteps and issue the second Irish ACS later on this year. The German landesbank, whose covered bond bank was authorised on the same day as DEPFA’s, has indicated that it is currently in the process of getting its new Dublin subsidiary, WestLB Covered Bond Bank, rated and is building its pool of assets.
DEPFA’s launch was very successful as it was initially indicated that the first bond would be approximately €2/3 billion, but the volume was increased due to investor demand. The bond will be increased by a further €1 billion over the next month or so to meet the benchmark level required by the EURO MTS on which it is listed.
Investor interest in the new product came mainly from Germany and continental Europe, with no Irish buyers. However, according to DEPFA, Irish investors did express considerable interest in ACS.
Other foreign public sector banks from Belgium, Germany and Italy are currently understood to be examining the legislation, with a view to issuing themselves. Due to the delay in formulating an Italian regulatory framework for issuing covered bonds, several Italian banks are considering establishing a subsidiary in Dublin in order to issue the bonds.
As for Ireland’s domestic mortgage sector, it remains to be seen whether or not these institutions will consider the ACS as a viable means of funding. While size is a key factor that these institutions lack, a way of overcoming this obstacle would be for two or more institutions to come together and launch a bond collectively.
Legislation enabling the development of a covered bond market came about as a result of co-operation between the industry, the Irish Bankers’ Federation, the Irish Mortgage & Savings Association and the Department of Finance. The Asset Covered Securities Bill was signed into law last year and the legislation is considered to be one of the strongest in Europe.
The issue has a maturity of five years, a coupon of 3.25 per cent and a re-offer price of 99.748 per cent, which gives a spread of 24.5 basis points over Bund, or 4 basis points over swaps. Moody’s, FITCH and Standard & Poor’s assigned ratings of AAA to the issue. |
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| Article appeared in the March 2003 issue.
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