Perfect timing
For showing finesse in identifying key opportunities across currencies and jurisdictions in a year when the covered bond sector remained undersupplied and investors favoured higher value and more strategic trades, HSBC is IFR’s Covered Bond House of the Year.
Covered bond issuance got off to a slow start in 2021 as the sector registered its lightest first quarter in three years owing to the availability of cheap central bank loans, which reduced banks' funding needs, and issuers prioritising more strategic unsecured transactions.
That slow start saw HSBC in an unusual position – languishing towards the bottom of the covered bond league tables.
However, once these strategic trades were done, the covered bond market's momentum slowly built, and HSBC picked up pace and shot back up into the top tier. Over the course of the year, it helped bring to market 40 covered bonds worth €37bn-equivalent across 11 jurisdictions, including nine inaugural and five ESG-labelled trades.
"It’s a marathon and often the winner of a marathon is not the first person off [the start line]," said Hugo Moore, HSBC’s head of frequent borrowers and covered bonds. “We've totally nailed it across every metric this year. The proof of the pudding is that supersonic day when we did four covered bonds out of Canada in four currencies – in 33 hours. This perfectly captured our capabilities but also the trust issuers had in us."
Between September 7 and 8, HSBC worked with Canadian banks to offer investors a broad menu of options without crowding any particular market. Over the two days HSBC Bank Canada printed a €750m five-year note, Royal Bank of Canada a US$2.5bn five-year, Bank of Montreal a £1.5bn five-year and Canadian Imperial Bank of Commerce, Sydney branch, a A$1.5bn (US$1.11bn) five-year.
"We managed everything in a compliant format and got a brilliant result that actually left each market in a better place," said Moore.
Those transactions didn’t just showcase HSBC’s global platform but also the trust clients invest in the bank. The CIBC deal, for example, was one of five covereds that HSBC worked on for the Canadian bank in 2021 – out of the seven it issued in total.
In another Canadian deal of note, HSBC was involved in a record-breaking issue for Bank of Nova Scotia. In October, the bank printed a US$3.5bn five-year, the largest single-tranche covered bond ever in the US dollar market.
The trade drew high-quality demand with books peaking around US$4bn, enabling BNS to take out a good size at an efficient cost.
The covered markets weren’t always so straightforward for syndicates. In Europe, windows were spotty, and banks had to think outside the box.
The Berlin Hyp €500m five-year that reopened issuance in mid-August was a case in point. The trade could have caught the market off-guard, having launched during the summer lull. But the issuer seized the opportunity to sell the euro covered market’s first benchmark since July 8. The move paid off with the deal more than four times subscribed.
HSBC says it is able to pick the right moment to execute deals because of the breadth of its operations. It is able to guide issuers into different jurisdictions based on what’s best for them at the time. It points to a debut Sonia-linked £1bn deal for Singapore's DBS Bank and a US$750m offering for Deutsche Pfandbriefbank as examples.
"When the covered market really came [alive], we came to the fore with a diversity of issuers and currencies," said Mark Pearce, head of FIG syndicate.
The bank has also been at the forefront of some structural shifts in the market, such as the move away from Libor. Last year it was a dealer-manager on three Libor-to-Sonia consent solicitations, for example.
Chris Hittmair, head of FIG DCM in EMEA, said that HSBC’s success in the covered market stems from a subtle change in mentality. The bank has prioritised "revenue and market share over being top of every league table", but even so "if you actually look at the last couple of years, the consistency of multi-asset performance from the franchise has probably improved”.
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