Covered Bond House: HSBC
Covered bonds proved to be one of the most reliable funding tools for banks in 2015, but a volatile backdrop and market distortion meant there was no shortage of obstacles to navigate. For its initiative, flexibility and global reach, HSBC is IFR’s Covered Bond House of the Year.
After a quiet end to 2014, covered issuance kicked off in earnest in January and through the year proved to be one of the most resilient asset classes in primary – even as volatility repeatedly scuppered supply in other parts of the market.
But covereds were not completely immune to geopolitical tensions and rates volatility, with issuance almost grinding to a halt in parts of May and June.
With the European Central Bank’s third covered bond purchasing programme thrown into the mix, muddying the waters as spreads ground artificially tight, there was no shortage of hurdles for banks to navigate for their clients.
HSBC nonetheless rose through the ranks to become one of the dominant forces in the covered bond market, jumping from fifth to second place in Thomson Reuters’ league table for all covered bond issuance and taking a 6.5% market share during the IFR awards period.
The bank’s ability to advise clients across currencies was a key driver of its success, allowing it to propose alternative solutions to issuers looking to sidestep the euro market or to diversify their funding.
It helped the likes of ANZ and DNB gain cost-effective access to the US dollar market as rates volatility made euro and sterling issuance much more difficult in the early summer, for example.
It also helped Bank of Montreal, CIBC and RBC print inaugural sterling trades to help reduce their reliance on euro funding and reintroduced Lloyds to the fixed-rate sterling market for the first time since 2012, placing almost 40% of allocations outside the domestic market.
The scope of its mandates time and time again proved HSBC’s ability to execute deals outside the ECB’s purchasing programme.
But that is not to say that HSBC did not have successes inside the euro market.
It helped Nordea Bank Finland bag the largest covered bond of the year, a dual-tranche trade that set new tights for Nordic covered bonds in both 5.25-year and 12-year maturities and delivered the issuer’s desired volume, securing €2bn of fresh funding in a single trip to the market.
The ECB’s impact on the covered bond market might have been the major theme in 2015, but it was not a year without innovations and developments.
Eurodollar trades made a return, as issuers seized on the chance to diversify their funding at a cost-effective level, avoiding the hassle of documentation for onshore US trades. HSBC helped Swedbank issue US$1bn of five-year notes in May, the largest and longest of the year’s deals in the format.
HSBC was also lead manager for Kutxabank’s 10-year covered bond, the first socially responsible investing bond from a Spanish institution and at the time the largest SRI covered bond. It was also the issuer’s longest ever trade and represented its tightest spread and coupon in the covered bond market.
While HSBC helped most issuers step into the market, it also helped one step out. It steered NRAM, the asset holding and management company that split from Northern Rock in 2010, to wind down its programme and removed all outstanding bonds from the market.
HSBC executed repeat deals for some 28 issuers, which speaks volumes about the value of its advice in the eyes of issuers.
But it also won the trust of issuers across different jurisdictions that it hadn’t worked with before, managing trades for KBC, Banco Sabadell and Bankinter.
It also proved a key adviser to Canadian banks, which issued some 17 deals in the European market in the defined period. It completed repeat deals for the likes of Bank of Nova Scotia, Bank of Montreal and TD Bank and worked with National Bank of Canada and Royal Bank of Canada for the first time. It issued covered deals for CIBC across four currencies.
“History tells us that if we do it once, we tend to do it again,” said Hugo Moore, head of frequent borrowers and covered bonds at HSBC.