covered bonds: enjoying a favorable regulatory and market ... bonds_what to exp… · „quality is...

© Landesbank Baden-Württemberg

Landesbank Baden-Württemberg

Head of Sovereigns/Financials ResearchDr. Thomas MeißnerManaging Director+ 49 / (0) 7 11/ 1 [email protected]

Covered Bonds: Enjoying a favorableregulatory and market environment.

„Quality is remembered long after the price has been forgotten.“[Aldo Gucci]

mailto:[email protected]


CBs: Both the primary market and the volume outstanding are shrinking, as spreads trend South.

Covered bonds extremely expensive, not only in light of the most recent fin‘l. mkt. turbulences


Secondary-market spreads:Core Europe has been treading water as of late, …

Sources: markit, LBBW Research

Risk spreads have been hovering around on low levels


… as has the periphery.

Sources: markit, LBBW Research

Spread compression at work


Banking systems in Europe: On our heatmap,we still detect some „soft spots“, but: never mind!

How to judge the banking systems along selected criteria

Sources: Bloomberg, LBBW Research

Tier 1 Ratio NPL/Total Loans Profitability Liquidity

IT

DE

ES

FR

AT

PT

IE

UK


The ECB‘s covered-bond purchase programs:This time around, the ECB drives at full speed.

CBPP3 is already dwarfting both CBPP1 and CBPP2

Sources: ECB, Bloomberg, LBBW Research


Covered-bond purchase program 3:Some restrictions apply – from the supply side.

Acquired amounts on a weekly basis (average: 2.464 mln. EUR)

Sources: ECB, Bloomberg, LBBW Research


Covered-bond benchmark issuance: 2015 couldend up as a beautiful swan, instead of a duckling.

Current year roughly in line with 2012

Sources: markit, Bloomberg, LBBW Research. Benchmark issues: ≥500 mln. EUR, fix coupon, investment grade, maturity >1 year


Covered bond benchmark issuance:We expect new issues gross of 103 bln. EUR.

LBBW new-issue forecast according to the individual countries covered

Sources: markit, Bloomberg, LBBW Research. Benchmark issues: ≥500 mln. EUR, fix coupon, investment grade, maturity >1 year

LBBW estimates Maturities 2015 New Issues 2015 Net 2015 New Issues H1 2015

Australia 0 5.000 5.000 2.250Austria 3.000 3.000 0 1.500Belgium 0 4.000 4.000 3.000Canada 0 10.000 10.000 7.000Denmark 1.250 2.000 750 1.000Finland 4.500 4.000 -500 2.500France 28.520 16.000 -12.520 9.500Germany 20.275 15.000 -5.275 10.000Greece 0 0 0 0Ireland 6.500 3.500 -3.000 2.500Italy 6.600 7.000 400 3.750Luxembourg 0 500 500 500Netherlands 5.000 2.500 -2.500 1.000Norway 4.000 3.500 -500 500Portugal 2.000 2.000 0 1.000Spain 36.133 11.000 -25.133 7.250Sweden 6.850 5.000 -1.850 3.000United Kingdom 15.225 5.000 -10.225 2.250United States 0 0 0 0Others 2.750 4.000 1.250 750Total 142.603 103.000 -39.603 59.250


For illustrative purposes:Covered bonds across Europe.

Outstanding covered bonds and new issuance

Sources: ECBC, LBBW Research, d-maps.com; as of end 2014; outstanding volume (dark blue), issuance volume (light blue)

104,515,1

16,00,4

12,34,1

41,712,3

32,06,5

375,0154,7

325,526,0

402,345,9

38,72,5

131,240,5

34,13,8

308,124,9

209,848,4

100,419,2

136,912,5 58,9

3,9

11,12,2


Sources: OECD, LBBW Research

Real-estate price indices, inflation-adjusted (base year: 2000)

75

100

125

150

175

200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

DEU FRA ITA GBR ESP NLD SWE IRL CHE AUT

Housing market in Europe:Positive price trends prevail.


Rating agencies do honor the new designs

In the beginning was the hard bullet;then, mankind created soft bullets and CPTs.


Pure hard-bullet jurisdictions ever more exotic

Sources: markit, Bloomberg, LBBW Research

The trend is your friend:The shares within selected CB jurisdictions revisited.


European banks: IDR as well as CB ratings (average)

Sources: Fitch, LBBW Research

CB ratings as allocated by Fitch suffer froma diminishing state support, namely in the South.


In contrast, Moody‘s® issuer ratings roughly stable,as CB ratings gain a little bit.

European banks: SU as well as CB ratings (average)

Sources: Moody‘s®, LBBW Research


§ In focus: Turkey Poland Singapore South Korea

§ Why are covered bonds from these countries attractive (especially now)?

ü Current or recently completed changes in the law in the interest of investors

ü Programs starting up or various institutions ready to issue paper

ü Spreads probably more attractive than in well-known markets

ü Country-specific developments and opportunities

ü To some extent support from purchase programs

Look beyond the traditional boundaries:There are some new kids on the block!


We consider the wave of regulation not over, yet –as Basel IV is looming.

Regulation: tying up both management capacity and money


Covered Bonds in continuous demand.Alas, the supply is missing!

Factor

Privileged regula-tory treatment

Exclusion from bail-in

Legislative harmonization

Transparency

Issuance volume

Rating

Assessment

CRD IV/CRR: preferential treatment to covered bonds=> strengthening of this funding tool.

Covered bonds are excluded from a bail-in=> greater clarity.

Clear political will to harmonize key elements of covered bonds;confirmed by capital market union.

Improved transparency enhances comparability and potential for analysis.

ECB is strengthening demand overhang (which is already considerable).

Covered bond ratings benefit from new methodologies.


Financials/Covered Bonds ResearchAlexandra Schadow, CPAGroup HeadFinancial Institutions & Covered Bonds Netherlands, Regulation+ 49 / (0) 7 11/ 1 27 – 7 89 [email protected]

Eugen EichwaldFinancial Institutions & Covered Bonds Belgium, Denmark, Finland, Norway, Sweden+ 49 / (0) 7 11/ 1 27 – 4 92 [email protected]

Ingo FrommenFinancial Institutions Germany+ 49 / (0) 7 11/ 1 27 – 7 46 [email protected]

Ralph HerreFinancial Institutions Netherlands+ 49 / (0) 7 11/ 1 27 – 7 64 [email protected]

Anna-Joy KühlweinFinancial Institutions Ireland, Portugal, Spain, UK+ 49 / (0) 7 11/ 1 27 – 4 21 [email protected]

Head of ResearchUwe BurkertGroup Chief Economist+ 49 / (0) 7 11/ 1 27 – 7 34 [email protected]

Sovereigns/Subsovereigns/AgenciesJan HofmeisterGroup Head+ 49 / (0) 7 11/ 1 27 – 7 93 [email protected]

Dirk ChlenchUSA, UK, Australia, Canada+ 49 / (0) 7 11/ 1 27 – 7 61 [email protected]

Matthias KriegerJapan, South Korea, South-East Asia, South Africa, Argentina, Brazil, Venezuela+ 49 / (0) 7 11/ 1 27 – 7 30 [email protected]

Dr. Katja MüllerSwitzerland, Nordics+ 49 / (0) 7 11/ 1 27 – 4 21 [email protected]

Manfred WolterEastern Europe (ex Eurozone), Russia+ 49 / (0) 7 11/ 1 27 – 4 28 [email protected]

Torben SkopnikSubsovereigns, Supranationals, AgenciesGermany, Netherlands, Austria, Spain+ 49 / (0) 7 11/ 1 27 – 4 21 [email protected]

Tobias Kelle-Chong, CFASubsovereigns, Supranationals, AgenciesFrance, Belgium, Nordics+ 49 / (0) 7 11/ 1 27 – 7 19 [email protected]

Sales Sparkassen+ 49 / (0) 7 11/ 1 27 – 75 65Sales Banks & Frequent Borrowers+49 / (0) 7 11/ 1 27 – 7 56 70Sales Asset Manager+49 / (0) 7 11/ 1 27 – 7 53 22

Sales Institutionals+49 / (0) 7 11/ 1 27 – 7 52 91Sales Regionalbanken+49 / (0) 7 11/ 1 27 – 2 82 22Sales Short Term Products+49 / (0) 711/ 1 27 – 75 74

International Sales+49 / (0) 7 11/ 1 27 – 7 88 47Sales Spezial- & Publikumsfonds+49 / (0) 7 11/ 1 27 – 7 53 58

Sales Capital Markets London+44 / (0) 20 / 78 26 – 81 75Corporate Sales & Securitisation+49 / (0) 7 11/ 1 27 – 7 53 00

Corporate Capital Markets+49 / (0) 7 11/ 1 27 – 7 87 46Debt Capital Markets+49 / (0) 711/ 1 27 – 7 88 25

Brigitte Martineau-TraunerFinancial Institutions Austria, France, Covered Bonds France+ 49 / (0) 7 11/ 1 27 – 7 41 [email protected]

Martin PeterFinancial Institutions & Covered Bonds Australia, Canada, Switzerland, USA+ 49 / (0) 7 11 / 1 27 – 4 27 [email protected]

Stefan RöschCovered Bonds Austria, Ireland, Italy, Portugal, Spain+ 49 / (0) 7 11 / 1 27 – 7 01 [email protected]

Karsten RühlmannFinancial Institutions Germany, Covered Bonds Germany, UK+ 49 / (0) 7 11 / 1 27 – 7 03 [email protected]

Werner SchirmerInsurance Companies, Financial Institutions Italy+ 49 / (0) 7 11/ 1 27 – 7 78 [email protected]

Sovereigns/Financial Research

Sales

Bloomberg: LBBK <go>

Research

Team EconomicsDr. Guido ZimmermannSenior Economist+ 49 / (0) 7 11/ 1 27 – 7 16 [email protected]

Dr. Jens-Oliver NiklaschEurozone, ECB+ 49 / (0) 7 11/ 1 27 – 7 63 [email protected]

Julian TrahorschEurozone, China+ 49 / (0) 7 11/ 1 27 – 7 66 [email protected]

Head of Sovereigns/Financial ResearchDr. Thomas MeißnerManaging Director+ 49 / (0) 7 11/ 1 [email protected]

Contact.
























Disclaimer.

Supervisory authorities of LBBW: European Central Bank (ECB), Postfach 16 03 19, 60066 Frankfurt am Main and the German Federal Financial Supervisory Authority (BaFin), Postfach 1253, 53002 Bonn / Postfach 50 01 54, 60391 Frankfurt. This publication is based on generally available sources which we are not able to verify but which we believe to be reliable. Nevertheless, we assume no liability for the accuracy and completeness of this publication. This publication gives our non-binding view of the market and products at the time when it was completed, irrespective of potential own holdings in these products.This report dos not replace personal advice. It is only meant for information purposes and not as an invitation to buy or sell.For any further and more up-to-date inflation about specific investment opportunities and for the purposes of individual advice, please see your financial adviser.This publication is not distributed by LBBW to persons in the US, nor does LBBW plan to approach persons in the US.

We reserve the right to change our opinions expressed here at any time and without prior notice.Furthermore, we reserve the right to stop updating this information or to discontinue it completely without prior notice. Please find current data according to § 5 section 4, no 3 FinAnV under http://www.LBBW.de/finanzanalyseverordnung.

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covered bonds: enjoying a favorable regulatory and market ... bonds_what to exp… · „quality is...

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