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EBS’ funding and the road of diversification Back  
EBS Builiding Society has just completed a successful €500 million senior debt issue, under its European medium-term note (EMTN) programme. Jackie Gilroy tells us how it fits in with EBS' funding strategy, which also includes the Emerald RMBS programme, and a €2 billion commercial paper programme.
As a mutual society, EBS’s origins were based on members’ savings being pooled together to help people to buy a home, initially for teachers but over the years its member base has broadened to include all sectors.

Funding the business has bbecome much more interesting in recent times with the unprecedented level of year on year growth in the mortgage market which is predicted to continue for some time, albeit at a lower level as price increases slow down and the current record supply levels off. Last year EBS assets under management grew by almost €2 billion and are projected to grow by significantly more in the current year. So how do we fund this kind of growth on an ongoing basis?

First of all, customer funding continues to be our main single source of funds. Customer funding is important to us as a member owned organisation with a strong franchise in both the savings and mortgage markets. However, as savings have not grown at anything like the same rate as mortgages for a number of years, wholesale funding has become increasingly important in recent years. EBS was to the fore in the late ‘80s early ’90s in utilising the loan markets when access to European banks opened up and the single currency became a reality. In more recent years, availing of opportunities in the capital markets as they have developed in scale and importance has complemented the more traditional bank and money markets.

As a result, today EBS has a wide variety of funding sources available to it and the recent senior debt deal is a good example of how we benefit from this when it is opportune. We first set up our EMTN programme in 1989, having procured an A3 rating from Moody’s in the previous year. We launched the programme with a 4-year publiic bond issue that matured last year. Over the past year as spreads tightened we increased our usage of the programme and completed a large number of private placements as a result of reverse enquiries. The market continued to improve and it was evident that there was good demand for a public bond issue. We decided to go to market with a minimum €300 million deal. We got a fantastic response all around Europe resulting in a strong order book at an effective yield of 20bps so we increased the deal to €500 million and satisfied investors with a reasonable allocation versus demand. We were pleased to see that the bonds immediately traded inside the issue price so it was a win win all round.

We were especially pleased with the spread of investors including a significant number of new names for EBS. While Germany represented a high percentage, the make up of the German investors was very different from the historical formula of a small number of big banks and the days spent by Mark Whelan & I on the autobahn paid good dividends. The strong level of interest in the Irish market and EBS name is reflected in the high number of investors which totalled 58 in number from 13 different countries, and of course the importance of Dublin as a market is reflected in the fact that Ireland was the next biggest source of funds after Germany so thank you to our local supporters.

On closure of this deal, EMTN now accounts for c.15 per cent of our total funding. As part of our diversification strategy, we continue to add new sources of funding and our current list of activities include the following:

• Securitisation the Emerald programme is now well established with 3 public issues over the past 4 years
• Bank committed the syndicated loan market has always been important to EBS with our most recent deal completed in 2002
• Mortgage-backed promissory notes EBS was the second user of this facility originally pioneered by AIB with Central Bank
• Commercial paper - we established a €2bn programme at the beginning of this year which was well received in the market. We are also currently planning to add a London CD programme in the current year as there is good demand in the market for this product.
• Schuldschein a good example of further diversity as certain investors prefer this type of specific structure to meet their needs

The money markets continue to represent an important part of our day-to-day cash management and again diversification is important to us which in this case is reflected in a very wide range of counterparties throughout Europe. The repo market may also be of interest as our balance sheet grows and our pool of eligible assets becomes more material. And of course on the customer front we continue to adapt our range of savings and investment products to cater not just for the retail market but to meet the needs of the growing number of corporate and financial customers in Ireland.

The fact that Moody’s rate EBS short-term debt at P1, strengthens our position in this market.
So EBS Treasury has indeed been an interesting place to be over the past number of years, and life promises to continue to offer us lots of variety as we aim to support continuous growth with - you guessed it diversification!

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