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BNZ may more than double size of NZ$3 billion covered bonds programme; says depositors' secure
By Gareth Vaughan
The Bank of New Zealand (BNZ) could more than double the size of its NZ$3 billion covered bonds programme after raising a more than expected 1 billion euros (NZ$1.75 billion) from its first foray into the massive European covered bond market.
The issue points to strong demand for Australasian bank debt from European covered bond investors worried about turmoil in their own back yard. The lower pricing helps reduce BNZ's funding costs when compared with other options and helps it meet the Reserve Bank's Core Funding Ratio rules aimed at weaning the big four banks off 'hot' short term foreign funding.
BNZ Treasurer Tim Main told interest.co.nz the bank had been looking to raise 750 million euros but was able to lift the issue to 1 billion euros due to strong investor demand. The seven-year issue was priced at a spread of 62 basis points per annum over the Euro mid swap rate. Main declined to say what the overall pricing – swap plus the 62 basis points - was.
BNZ’s first domestic covered bonds issue, when it raised NZ$425 million in June, saw NZ$175 million worth of five-year bonds priced at 98 basis points over the swap rate meaning those bonds pay 6% interest per annum. And NZ$250 million worth of seven-year bonds were priced at 112 basis points over the swap rate meaning they'll pay 6.425%. However, Main said domestic pricing couldn’t be compared to the very different European market.
Instead the best comparison was with what BNZ would have paid to issue senior, unsecured seven year debt in Europe. And he suggested the covered bond issue was nearly 50% cheaper than the 120 basis points over swap BNZ would’ve paid to issue the vanilla debt. BNZ's euro denominated covered bonds were bought by asset managers, insurance companies, pension funds and central banks from the likes of the Netherlands, Germany, Austria, France, and Britain.
Trillions worth
Europe has the world’s biggest and most developed covered bonds market. The European Covered Bonds Council estimates there were 2.4 trillion euros of covered bonds, from more than 25 countries, on issue at the end of 2008.
Related Topics
“We were very, very happy with the outcome,” said Main.
Credit rating agencies Moody's and Fitch assigned triple A ratings to BNZ’s total NZ$3 billion covered bonds programme, higher than BNZ’s own double A rating. Covered bonds are senior debt instruments backed by a dedicated group of home loans known as a “cover pool.” So if the issuing bank becomes insolvent, the assets in the cover pool are carved off from the issuer’s other assets solely for the benefit of the covered bondholders.
This ring fencing of a chunk of a bank’s balance sheet is why covered bonds are banned by the Australian Prudential Regulation Authority as, in the event of a default by the bank issuer, depositors’ claims are diluted. However, the Australian parents of New Zealand’s ANZ, ASB, BNZ and Westpac are lobbying for the introduction of covered bonds in Australia.
Back here the Reserve Bank wants the Government to pass a law enabling banks to issue covered bonds backed by legislation to help them entice overseas investors. Westpac is expected to be the next New Zealand bank to issue covered bonds,with an issue targeted for the first half of the 2011 calendar year. ANZ and ASB are also eyeing issues.
Debtholder, depositholder protection 'unaffected'
Asked to address deposit holders concerns about covered bonds, Main said the most important thing was there was a limit on the value of covered bonds a bank can issue. The Reserve Bank recently said it’s comfortable with New Zealand banks issuing covered bonds worth the equivalent of up to 10% of their total assets. In BNZ’s case that would be about NZ$6.96 billion based on the bank’s total assets of NZ$69.647 billion as of September 30.
“At that level we think that the credit rating of the bank overall, and therefore the protection for ordinary senior debt holders and deposit holders, is unaffected,” Main said.
“So it’s a matter of issuing up to a level which is not going to threaten the credit rating or the security of other creditors in the bank.”
He said the 10% of total assets level, up from the 5% the Reserve Bank had previously rubber stamped, strikes the right balance between protection for depositors and giving banks the opportunity to source “a good market.” BNZ now aimed to lift the size of its NZ$3 billion programme and expects to issue covered bonds annually.
“It will be our intention, steadily over coming years, to increase the amount of issue to utilize that larger (10%) limit that has been talked about by the Reserve Bank,” Main said. “It would mean that we’d be in the markets probably once a year doing a regular issue into the European market.”
There would also be further domestic issues but no other offshore markets were currently being targeted.
A key reason BNZ was issuing covered bonds was to help it meet the Reserve Bank's core funding ratio (CFR), Main added. Introduced on April 1, the CFR sets out that banks must secure 65% of their funding from retail deposits and wholesale sources with maturities of more than one year. The central bank aims to lift the CFR to 75% during 2012. When it released its annual results last month, BNZ said its CFR was "well above" 65%.
* This article was first published in our email for paid subscribers earlier today. See here for more details and to subscribe.
14 Comments
Hey BNZ, if you are watching
Hey BNZ, if you are watching this space read my lips.
I will NOT be re newing my latest term deposit with you.
Westpac, if you are watching.
If you go down the same road I will also NOT be renewing my soon to mature term deposit with you.
On another note, the Goodman Fielder issue rate was set at over 7.5% today for five years. It was a much better rate than the BNZ could offer for 5 years and unlike a term deposit is very liquid. I can sell it on the market at any time.
Who was it who greedily dived
Who was it who greedily dived in to SCF to cynically exploit the taxpayer-supplied social welfare cheque that was the GG? Such a disgusting bit of loserish bludging. Do you remember who that was?
Why you jealous little
Why you jealous little sniveler.
delete, duplicate.
delete, duplicate.
Oh, it was you?
Oh, it was you?
I dont know much about
I dont know much about banking, but lets see, if I have a deposit with the same outfit I have a mortgage with, if they go ass up, my deposit counts for zip and I still owe my mortgage. Now my deposit is even less mine as some european outfit has first call...The mattress is looking better by the day.
Wally - you are correct
Wally - you are correct again. We were all looking for, but .... you are correct again. Cheers, Les.
Adding further layers of
Adding further layers of confidence tricks to the already imploding house of cards and extending the banksters ability of alchemy of counterfeit is a sure way to peonage.
I have reposted below from another thread as it is also very relevant to this, and most anything else in the realm of economics for that matter.
I am glad to report at a time when the world is at tipping point of accepting peonage or violent instability with little hope of a means of a diplomatic revival of common decency I have had turn up via email today a submission presented to the British Independent Commission On Banking by a collective of monetary reform groups. I am glad to report that it is the best presentation of a solution I have ever seen and I think they have cracked it.
I beg everyone to read every word of it and give an opinion. I believe if widely promoted the Banksters cant fob it off without fully exposing themselves once and for all for the predators they really are and the correct people will take the so called 'haircut' . I will also include below the copy of the email the best document I have seen from the very horses mouth of just who those people are:
Positive Money's Submission to the Independent Banking Commission
Dear Iain,
Positive Money, nef (the new economics foundation), and Professor Richard Werner of the University of Southampton, have just made a joint submission to the Independent Commission on Banking. The Commission will be reporting back in September 2011, and the government should - in the absence of lobbyists - be prepared to accept and implement their proposals.
What Have We Recommended?
We've recommended the implementation of full-reserve banking for the UK, with power over the issue of the nation's money supply kept out of the hands of both vote-seeking politicians and profit-seeking banks. It is a proposal that could be implemented quickly (comfortably within 12 months) and that would have huge benefits for the economy as a whole. It may not be perfect, but it would be many times better than any banking system that we have had in the last 500 years. Download the submission below and let us know what you think.
Download the ICB Submission here (PDF, 1.1mb)
But Will they Listen?
Is the Commission really independent? Will they be sufficiently radical to address the real problems, or just patch up the existing system? The signs so far are pretty encouraging.
Firstly, one of the members of the Commission is Martin Wolf, Chief Economics Editor of the Financial Times. Here's what he had to say about fractional reserve banking (the current business model used by almost every bank globally) just a few days ago:
“The essence of the contemporary monetary system is the creation of money, out of nothing, by private banks’ often foolish lending.”
Martin Wolf, Financial Times, 9th Nov 2010
Martin Wolf has also been promoting John Kay's Narrow Banking proposals and Laurence Kotlikoff's Limited Purpose Banking, both ideas which would abolish fractional reserve banking. And guess who the other main proponent of these ideas is? None other than current Governor of the Bank of England, Mervyn King, whose take on the current banking system is pretty clear:
“Of all the ways of organising banking, the worst is the one we have today. ...eliminating fractional reserve banking explicitly recognizes that the pretence that risk-free deposits can be supported by risky assets is alchemy. To work, financial alchemy requires the implicit support of the tax payer...For a society to base its financial system on alchemy is a poor advertisement for its rationality.”
(Mervyn King - download this brilliant speech here)
So if the top guy at the Bank of England, alongside one of the most respected economists in the UK, both believe the current banking system is 'a poor advertisement for rationality', we might hope that the Commission's final recommendations do not simply involve patching up the existing system.
But most encouraging of all is the fact that the Commission's remit already includes two proposals that would eliminate fractional reserve banking. Those of Kay and Kotlikoff both make it impossible for commercial banks to create money out of nothing through their "often foolish lending". These two proposals were a late addition to the Issues paper, and we believe may have been added at the request of either Martin Wolf or Mervyn King himself. Fingers crossed that the Commission will be radical and make take on board the points outlined in our submission:
Download the ICB Submission here (PDF, 1.1mb) and let us know what you think by leaving a comment here.
Ben Dyson & Ben Curtis of Positive Money
--------------------------------------------
The below linked document is a speech by Delos C Johns President Federal Reserve Bank St Louis July 28 1952.
It is enlightening from go to woe. The sentence crossing pg 6-7 is the first official document from the FED itself that I have come across making reference to the 'official families' at the core of central banking. This document makes it quite clear that they knew and admitted even back then that fractional reserves were a confidence trick and that the system was in-fact one of prudential reserve from the get go:
http://fraser.stlouisfed.org/historicaldocs/1151/download/51955/johns_19520728.pdf
Finally I think we have something that monetary reformers the world over can focus on to build a consensus and set about acting upon in time to try and prevent the continuing crimes against humanity that the banking empire have inflicted thus far.
I will add two more links in
I will add two more links in addition to above that when added to the information contained in above I challenge anyone that does not attempt to act upon and address for the better the irrefutable evidence of the crimes against humanity that they contain are themselves a fraud:
http://www.thetwofacesofmoney.com/files/money.pdf
http://publiccreditorbust.blog.com/2010/10/17/office-of-new-zealand-finance-minister-bill-english-all-but-completely-admits-to-banking-mathematical-trap-but-reverts-to-orthodox-smoke-screen-upon-harder-questioning/
If the above is not addressed we are almost certain to end up where the respected commentator Tyler Durden expects we will in this great but sobering article:
This crisis is the direct result of a strategic economic attack on the existence of a middle class and democracy worldwide. The stock market and economy have become weapons of mass oppression manipulated by an imperial banking cartel to impose order and exploit the masses. This crisis boldly represents the manifest evolution of the fascist spirit reasserting itself as the dominant ideology.
Any fairytale notions of the United States being a democratic republic built on the rule of law have been utterly dispelled. As a nation we have been bred and conditioned to be dangerously naïve to the darker forces which operate beyond the spotlight of the mainstream media. We have been blinded to what has been developing throughout the world.
The economic imperialism that has now blown-back to the United States and Europe has been evolving for decades and can be directly traced back to the end of World War II, to the birth of the CIA, International Monetary Fund (IMF) and World Bank.
For those of us who have been paying attention to economic imperial operations that have been carried out against countries throughout the world, this looks all too familiar. The IMF and global bankers have conquered the second and third world, and they have now moved on to countries within the first world. Western European and American working classes are in the cross-hairs now.
Economic and societal indicators, along with recent G-20 policy decisions, clearly demonstrate that they are carrying out and escalating systemic economic attacks throughout Europe and the US.
http://www.zerohedge.com/article/introduction-road-through-2012-revolution-or-world-war-iii
"Depositors are
"Depositors are secure"....until the day comes when they are not!
Bad enough when the BNZ collapsed in the early 90s from pisspoor management.
Oh well, the BNZ can always count on Key to bail them out with taxpayer money.
Will we see laws enacted that force Kiwi families to borrow...not far off that now are we...having freehold title will mean a visit from a bank and a police officer...you will borrow or be fined!
Iain, I think parts of this
Iain,
I think parts of this proposal are good in particular the escrowed transaction accounts, which is the same as what I have been saying. But the idea of how a Monetary Policy Committee could determine the "money supply" is beyond me. When a loan is extended who owns the note? They are short on detail here, but here's a hint.
"Cashflows into the Investment Pool:
1. The monthly repayments (principal + interest) from mul9ple borrowers"
So it would seem that loans are not on the bank's balance sheets but instead are an asset of the investment pool controlled by the MPC. The investment pool is therefore effectively a the securitised bond holder. So this is socialisation of the banks, banks become agents of the investment pools.
Further, extending a loan still increases the money supply. It's still the borrower's signature that creates the money out of thin air. The loan is deposited into the transaction account, it could be spent, it then might end up in an investment account and therefore deposited into the investment pool.
In the end there's only one factor that determines the quality of the money supply and that is the quality of the lending. The only way to ensure this is to have a system where the lender treats the loan as being their "own" money. A system where some remote committee determines the money supply would lead to lolly scramble at the end of each "money supply" pronouncement from this committee.
In effect of course the bonds
In effect of course the bonds issue is a call on Govn ie tax payers....when the double dip bites the NZ Govn will again cover the banks to make sure depositors are covered or there will be bank runs........
Its one huge socialise the losses scam, we have right whingers whimpering about the ppl on welfare but seem surprisingly quiet when it social coverage for the rich.
regards
Hi Fred, May I ask if you
Hi Fred,
May I ask if you read and absorbed the whole document?
http://positivemoney.us1.list-manage2.com/track/click?u=7396d6c5dc44c9d3b64d8265c&id=f373bec1c5&e=cce309d361
I believe if you did I find it hard to fathom that most of yours or most anyone elses concerns have not been met with this proposal.
It does not remove risk from risk takers onto the tax system. It ensures that the buck stops with the risk takers and is not systemic misery for all others that were prudent.
Of course it has to be ensured that the money supply stays with in the boundaries of longterm sustainable natural resources.
One thing I would add is that when a person is physically able they receive not one cent of the available money supply without a work test.
Thats it for me until Sunday.
Thats it for me until Sunday. Good luck to you and your families.