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Tuesday, 21 November 2017

Covered Bond House: BNP Paribas

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  • Having it covered

Navigating a market increasingly at the mercy of regulatory forces is far from simple. For its consistency, credibility and global coverage, BNP Paribas is IFR’s Covered Bond House of the Year.

After a tricky 2013, things picked up for covered bonds in 2014. Volume was up by 4%, the confirmation that banks could count the product in liquidity coverage ratios provided a boost, and the launch of the ECB’s third covered bond buying programme really kicked things into overdrive.

Although the resultant surge of issuance left the market reeling, it also gave banks ample opportunity to differentiate themselves from the pack – and BNP Paribas took full advantage.

The French bank scooped top spot in market share of both jumbo covered bonds across all currencies as well as in euros, the dominant currency this year, at 8.8% and 8.9%, respectively.

But the bank’s league table success was only part of the story. Far from being a one-trick pony in the euro market, BNPP showed it had the expertise and distribution capabilities to compete for mandates beyond the eurozone.

It was one of the lead managers on Toronto-Dominion Bank’s debut dollar bond issue under the new Canadian legislative framework – at US$1.75bn, the deal was one of the largest dollar covered bond offerings of the year. And it was active in Australia, securing deals for ANZ, Commonwealth Bank of Australia and Westpac.

And issuers often came back for a second helping – and sometimes more. Toronto-Dominion mandated BNPP on four successive deals across sterling, US dollars and euros, the only external bank for which this was the case.

German Landesbank Helaba, meanwhile, enlisted BNPP for four of its covered bonds and three taps – the French bank was the only institution to be on every covered transaction from the issuer in the last year.

BNPP was also trusted to help issuers reopen, or return to, the market. It advised on sterling covered bonds for Nationwide and Abbey, both returning after a hiatus of around two years. Nationwide attracted one of the largest sterling covered order books of the year at £1.7bn, while several orders in excess of £100m for Abbey underscored the bank’s fruitful relationship with top investors.

Nordea’s €1.5bn bond issue was announced on January 2 before printing five days later, delivering one of the first deals of the new year.

BNPP also helped Caisse Francaise de Financement Local price the first large euro covered bond offering following the announcement of the ECB’s latest bond buying programme. At the time it was the tightest non-German five-year covered since the crisis.

In addition, the bank helped Portugal’s Santander Totta regain access to the wholesale funding market with a healthily oversubscribed three-year deal in March.

But BNPP also stood out for its advisory capacity. The bank had the foresight to lobby for LCR status for Canadian bonds (now eligible as Level 2A assets), demonstrating a proficiency that pays dividends by leading to further structuring mandates.

And while other banks suffered from reductions in SSA and covered bond trading, BNPP dug in its heels and led the pack in terms of covered bond trading volumes. The resultant ability to manage balance-sheet risk more effectively proved a valuable differentiator in a competitive market.

BNPP believes that only knowledge of the full product spectrum can provide the best client service, particularly because certain mandates can transform in nature completely.

As such, its covered bond proposition is fully integrated into the broader FIG offering – which can also help open the door for more lucrative products such as Additional Tier 1.

“The starting point is always the issuer and the investor,” said Derry Hubbard, head of financial institutions syndicate. “We need to be neutral in terms of the best advice we give. We are not pushing one product.”

But when that product is a covered bond, BNPP happens to do it particularly well.

To see the digital version of the IFR Review of the Year, please click here.

To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.

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