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Capital Markets

Covered bonds face an identity crisis

The covered bond market is growing fast on heavy demand for alternatives to supra/agency debt and on buoyant supply as more and more countries pass enabling legislation. Pfandbriefe might still dominate but expansion is bringing in its wake a wide variety of variants on this classical model.


WHEN IS A covered bond not a covered bond? When it's a structured covered bond? When it's a structurally enhanced covered bond? When it's issued by an opportunistic borrower and bought by an opportunistic investor? When it trades tighter than a government bond?

Covered bonds, it seems, are going through an identity crisis. So are some bankers. In September, Bank of Ireland raised e2 billion through the first mortgage-backed deal under Ireland's asset covered securities (ACS) legislation. A 10-strong management team roadshowed the deal around the world. "What Bank of Ireland achieved this year is as outstanding as what we did last year," says Wally Höfer-Neder, formerly global head of capital markets at Depfa Bank Plc. She will shortly be taking up the same role at Depfa's Deutsche Pfandbriefe Bank.

"When I listened to their presentation, I felt more Irish than German." Depfa had, of course, pioneered the use of the ACS framework last year with a e4 billion five-year deal – one in which it takes great pride.

Höfer-Neder's comment after sitting in among the investors at Bank of Ireland's Frankfurt roadshow indicates the way in which the growth of the covered bond market is distorting the covered bond product.

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