Covered Bond House: Credit Suisse

IFR Awards 2020
5 min read
Malicka Danna Sielinou

A fast start
For showing versatility and innovation in a year characterised by volatility and dwindling issuance, Credit Suisse is IFR’s Covered Bond House of the Year.

Covered Bond House

Credit Suisse led from the front in the covered bond market in 2020. Even before the global outbreak of Covid-19, the Swiss bank was ahead of its rivals. When the first lockdowns were imposed it continued to tighten its grip, showcasing its ability to bring different borrowers to different currencies.

“The work we did with key clients got us on top of the league tables from the start and we held on to it ever since,” said Michael McCormick, head of covered bond origination at Credit Suisse.

The bank got off to a fast start, lead managing deals in the euro market valued at more than €8bn before March, alongside transactions in sterling, US dollars and Swiss francs.

One of those early deals was a £1bn seven-year Sonia-linked residential mortgage bond in February for Santander UK. At the time it was the longest Sonia deal by a financial institution.

The sterling tranche was part of a dual-currency funding exercise by Santander UK, which also included a US$1.25bn three-year note, the issuer’s first covered bond in that currency. Both tranches were 144A/Reg S registered, making the deal the first UK bank issuance in 144A format in almost eight years.

The strategy enabled leads to create pricing tension between the two tranches and helped diversify Santander UK’s investor base.

In a testament to how highly the Santander group values Credit Suisse, a couple of weeks later Banco Santander hired the Swiss bank as a lead on a €2.5bn dual-tranche covered transaction comprising five-year and 12-year notes. The five-year bond was the first negative-yielding transaction from Southern Europe.

Expanded range

Those deals came ahead of the Covid-19 market breakdown. But Credit Suisse continued to be active during the worst period of the year, in particular by bringing Canadian issuers such as Scotiabank, TD Bank and CIBC to the market after the Bank of Canada expanded the range of assets eligible as collateral for repo operations to include own-name covered bonds (a move later repealed).

“During this phase, we were able to go to the Canadians and help them pick up liquidity in US dollars, in the 144A market, in Swiss francs and in sterling even,” said McCormick.

“In fact, we were able to do the one sterling transaction that was worth doing during that period,” he said, pointing to a £125m reopening by CIBC that came as the Covid-19 turmoil intensified, and on the same day another Canadian transaction in the sterling market was pulled.

It was during this acute phase of the crisis that the covered bond product came into its own, highlighting its status as a key funding tool in difficult times.

So while overall issuance volumes fell year-on-year – in euros to €95.7bn from €141bn in 2019, as eurozone banks in particular seized other funding opportunities such as the ECB’s lending schemes – the covered market proved its worth.

“In a year like [2020], it was very clear when things get tough it’s a product you can rely on, though even then it wasn’t a slam dunk to get cash through the door,” said Shashank Tandon, head of EMEA FIG syndicate at Credit Suisse. “Every bank was trying to raise whatever cash they could in whatever currency and format.”

A big reason behind the bank’s success was the quality of its advice. Unlike most of its main rivals, Credit Suisse doesn’t have a euro covered bond issuance programme of its own that it can use to win reciprocal business.

“We win business purely on our advice and balance sheet usage,” said Tandon.

That quality of advice was on show later in the year, as Covid-19 volatility eased and markets were back in a serene mood thanks to government and central bank largesse. For the euro covered bond market that meant a return to unattractive yields for investors.

One way to entice them was by offering duration, a big theme in the latter part of the year, and that’s exactly what NN Bank did with a debut €250m 20-year trade that Credit Suisse sole led in November.

“We believed in it, took on the risk, put our balance sheet to work and sold it successfully. We made it happen,” said Tandon.

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