Westpac covered bond issue nears

Westpac appoints four lead managers for NZ$1.75b February covered bonds issue

20th Jan 11, 4:16pm by Gareth Vaughan

Westpac New Zealand has appointed four lead managers for a 1 billion euros (NZ$1.75 billion) covered bond issue which the bank aims to launch in mid-February.

The issue will be the first in a 5 billion euros covered bond programme announced by Westpac late last year and will make it the second New Zealand bank, after BNZ, to issue covered bonds.

A Westpac spokesman confirmed the bank has appointed Barclays, BNP, UBS and Westpac Institutional Bank to manage its initial covered bond issue. Westpac staff will undertake a roadshow meeting potential European investors in early February with the actual issue of the bonds expected to take place in mid-February. The Westpac group is due to release a first quarter trading update on February 15.

The spokesman said Westpac had not yet settled on what term the bonds will be sold for. Covered bond terms usually range from five to 10 years.

Covered bonds are senior debt instruments backed by a dedicated group of home loans known as a “cover pool.” So if the issuing bank defaults, the assets in the cover pool are carved off from the issuer’s other assets solely for the benefit of the covered bondholders. The Reserve Bank says it’s comfortable with banks issuing covered bonds worth up to 10% of their total assets, based on the value of assets securitised.

Westpac's total assets stood at NZ$55.2 billion at September 30, meaning currently it could issue covered bonds worth up to NZ$5.52 billion. The bank says it has no plans to go beyond the Reserve Bank's 10% threshold, with the covered bonds programme taking place over several years during which it hopes to grow its total assets.

In the first covered bond issue by a New Zealand bank, BNZ raised NZ$425 million from domestic institutional investors last June. It then raised 1 billion euros from selling covered bonds to European institutional investors in November through an issue of seven year covered bonds paying out a fixed interest rate of just 3.125% per annum.

Aside from being a source of cheap funding, BNZ and Westpac say they are issuing covered bonds to help meet the Reserve Bank's core funding ratio (CFR). 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.

Both ANZ New Zealand and ASB are also considering issuing covered bonds.

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29 Comments

by muzza | 20th Jan 11, 5:40pm 1295498457

Are these covered bonds are going to bring quite a bit of cheap money into NZ for mortgages?

by Wolly | 21st Jan 11, 7:13am 1295547195

You got it Muzza. Signals the real intentions of govt, the RB and the banks. Lower the cost of borrowing. Pork property activity.

The 6 part strategy has been all BS and spin. The weight of policy is moving toward hiding the unbalanced economy in a wave of property speculation. The CFR has never been about moving to rebalance...but all about making the speculative bubble safer. The cheap money is to used to make repayment of mortgage debt easier for enough peasants that they can stay where they are and be farmed by the banks...otherwise the mortgagee sales and balance sheet blood would become the norm.

Although we will never know for sure...it is highly likely the buyer of the covered bonds, has been the Fed in the US via middlemen in Europe. That would fit in nicely with the information coming out in aus that the big four took money from the Fed. I expect that doorway will be opened wider to prop up the aussie mortgage bubble given the floods and instability in the property sector over there.

by muzza | 21st Jan 11, 10:05am 1295557500

Thought so, well that's good for property owners then. Evidently house prices evidently shot up big time in Tauranga (not coastal Mount area in December

by Wolly | 21st Jan 11, 10:33am 1295559230

No Muzza...you hope for too much...the market pumping will only hold the deflation within tolerable numbers...look for an average decline or 3 to 5% plus the debasement of 3 to 5% per year until the real prices are on a par with pre bubble numbers.....the less the drop the longer it takes!

The return of the socialist/marxists/greenists would likely come with a wave of refugees invited in and being organised now by guess whom at the UN. This would be seen as good bank fodder and take us back to the future for a repeat of the 9 years of waste.

by muzza | 21st Jan 11, 11:07am 1295561234

We won't be able to send them to Australia either with Julia Gillard cracking hard now.

I don't think in growth areas there will be a constant actual 3-5% decline for next untold years, you just made that up, what we are starting to see is fluctuations, sometimes an upswing eg Tauranga last month, sometimes down, but time will tell - unless the Greens become a coalition party and insist on a land tax/capital gains tax which would have a detrimental impact- but don't vote for any possible Labour/NZF/Greens government for goodness sakes!

by Wolly | 21st Jan 11, 11:13am 1295561593

"you just made that up"...well gee muzza, what the hell else is one to do...?

by muzza | 21st Jan 11, 12:46pm 1295567209

Well obviously use actual data would be a start, and don't vote for the Greens etc

by powerdownkiwi | 21st Jan 11, 1:42pm 1295570547

I look forward to the day you use actual data, Muzza.

Perhaps you can start by listing the economic activities (including everythign to do with property) which can get by without energy.

It won't take long, here's a clue between the brackets: ( ).

Then start investigating energy supply. You may indeed further contemplate efficiencies, discretionary use (displacement of) Jevons paradox, More's 'law', EROEI, all of which will add to you knowledge.

Talk of house prices, 'growth', or even of which party to vote for, are nonsense if the facts don't support the ideological wish.

by Gummy Bear Hero | 21st Jan 11, 2:18pm 1295572735

If the Greens went back to their core tenets , the environment , they'd have more credibility .

But their forays into social engineering must have damaged their support base .

And their utterances that the minmum wage ought to be pushed up to $ 15 / hour are sheer lunacy .............. That'd cripple job options for the nation's youth even further . ...... [ Another ideological burp , with unforseen and severely undesirable consequences . ]

by Wolly | 21st Jan 11, 2:27pm 1295573223

Muzza wants me to use actual data Gummy...where the hell do I get actual data that is factual and not made up by some other sod!...the greenfly dont want credibility...they want votes...power....glory.....money...oops.

by muzza | 21st Jan 11, 3:59pm 1295578793

Powerdownkiwi, sorry I'm not au fait with energy aspects, so can't answer. My role as a company director involves aiming to get growth with businesses. Seems as if you query the sustainability of growth and fair enough, that is an argument. But without economic growth you won't have the structures to sustain the welfare state, and all those who want medical attention, want their national super etc etc, not that I personally agree with the amount of 'entitlements' that people get.

As for the Greens, GBH says it all, they would have more credibility if they got back to being green, rather than a deep red colour. They have attacted too many into the politics of envy who want to level the playing field by bringing it seems, everyone down to a lowest common denominator. Eastern Europe for about 4 decades prior to the collapse of the Berlin Wall revealed the sad outcome of such an ideology. And there is a wing in the Greens that strongly desires social engineering.

by muzza | 21st Jan 11, 4:00pm 1295578846

by We Are Stuffed | 23rd Jan 11, 9:19am 1295727599

Wolly doesn't make these things up. Wolly has a real crystal ball. Not one of those cheap Chinese imports one but a real one....

by walker janette | 21st Jan 11, 9:00am 1295553635

Do the banks disclose to home loan cover pool borrowers that their mortgage has been on sold and could be on sold many times. Why is Westpac being pushed to have more clout?

Why the Westpac Bill being pushed through Parliament which would allow Westpac to import debt and credit portfolios from Australia? Maybe it is a way of getting more "covered pool borrowers" assets to go into the mix for when they do their sell in Europe.

by Wolly | 21st Jan 11, 9:14am 1295554468

The banks do what they want to WJ...the govt and RB just trot along beside...the mortgages belong to the bank not property owners.

The real danger is in what the banks do with the cheaper credit. You can safely bet it will go into property speculation since the banks will want to protect the value of the 'covered pool'....self perpetuating game.

In the meantime the 'savings' will be used to hide the at risk sector on bank balance sheets...put it another way...banks gain some space to avoid forced sales and so get to protect the bubbles that they need to continue to be able to feed off the economy.

What you will not see is the savings being directed into increased lending into the export sector unless secured over property.

The bonds make the refi cheaper for the banks and it is difficult to find out whether the banks will borrow more as a result. They may just go for the savings gain.

by walker janette | 21st Jan 11, 4:55pm 1295582133

just had this emailed from Reserve Bank

http://www.rbnz.govt.nz/finstab/banking/4206833.pdf

Interesting reading for some Quote: The Aust Banking Act 1959 requires that if a bank is unable to meet its obligations or suspends payments, its assets in Aust are to be available to meet the deposit liabilities in Aust prior to all other liabilities.As covered bonds subordinates depositors' interests, the Aust Prudential Reg Authority considers them to be inconsistant with the depositor protection provisions, and therefore Prudential Std's APS 120 prohibits the issuance of covered bonds by Aust Banks.

I guess Aussie Banks have found a way to circumvent this ruling.

by Wolly | 22nd Jan 11, 6:26am 1295630781

I wouldn't touch their covered bonds with a barge pole ...with Bollard glued on the sharp end....this herald disclosure set to be exposed fully in a Court case, may well be just the tip of the iceberg.

"The SFO charges relate to an alleged $2.3 million mortgage ramping scheme. Such frauds take advantage of property boom and lax mortgage lending by banks".

by Storeman Norman | 23rd Jan 11, 11:29am 1295735357

Comment from the Financial Times... Pretty much on the money I think, apart from the quaintly misinformed "New Zealand and Australia emerged from the credit crisis in pretty good shape"!

In June last year, the Bank of New Zealand issued the country’s first covered bond – securities backed, for example, by mortgage payments. (So the bank, receiving loan payments, in turn issues debt, receiving cash for that and allowing them to lend more.) Seven months later, the central bank has already seen fit to limit issuance of these bonds to 10 per cent of a bank’s total assets.

The practice allows a bank to increase leverage. The popularity of this and similar leveraging techniques in the US and Europe has been blamed for difficulties faced during the credit crisis. Complex interdependencies are created by reselling debt, repackaging it or simply issuing new debt on the basis of cashflow from other debt.

New Zealand and Australia emerged from the credit crisis in pretty good shape – and the absence of these leveraging techniques was one of the reasons given. So the need to limit bond issuance comes as a surprise. Australians still ban the practice, apparently, on the grounds that bondholders have prior claim to depositors. Are Kiwi banks really keen to use a technique that brought their western counterparts to their knees?

by Patricia | 22nd Jan 11, 12:52pm 1295653937

Well if they say that they are only going to borrow no more than the Reserve Bank will allow -10% - then those depositors with Westpac can potentially lose 10% of their deposits. Is the Government going to guarantee that 10%? If it does then they will have to borrow overseas to do it I suppose. The lesson is don't put your money in any Bank that gives covered bonds.

by We Are Stuffed | 23rd Jan 11, 9:25am 1295727954

That is exactly right Patricia. I will not be depositing at any banks who issue covered Bonds.

by Malarkey | 23rd Jan 11, 9:51am 1295729463

And yet you're perfectly willing to bludge taxpayer-funded welfare benefits.

Hypocrite.

by We Are Stuffed | 23rd Jan 11, 10:03am 1295730205

get a life Malarkey

There is an article in stuff.co about you today:

"Accusations that New Zealand is one of the worst performers in the developed world when it comes to the income gap between rich and poor have been validated by a Sunday Star-Times survey.

Conducted by Horizon Research, it shows the burgeoning gap between the haves and have-nots is frothing over into resentment, anger and disillusionment.

Those who are struggling are slamming the government for giving tax breaks to the rich, and for the perceived "propping up" of failed finance companies"

You need to get over it Marlarkey. I can't help it if you are too poor to take advantage of good investment opportunities. You also need to distinguish between a good investment and welfare.

I am 46 and retired. I do not bludge. I live off my investments accumulated from tax paid income I have saved over my working life. If that makes you jealous, tough. I really couldn't give a toss about you.

Get over it and lose the resentment anger and disillusionment.

Have a nice day:)

by muzza | 23rd Jan 11, 6:03pm 1295759039

Except for those with a genuine disability, there is stil plenty of opportunity for those who are prepared to give things ago, but of course it is easier to snipe and carp against those who have/do. There is quite a lot of negativity on this site. We Are Stuffed, you have done well to be in your situation by 46 yrs, way to go mate.

by Wolly | 23rd Jan 11, 10:25am 1295731539

The year is off to a cracking start isn't it......isn't it?

Council rates rising everywhere twice the rate of reported inflation...or are we learning what the real rate of inflation is from the council increases! hmmmmmm

Insurance premiums going up up up as the providers seek to cover their losses and make some profits out of fear.

Petrol and diesel....we know where these are going don't we

Property sector in a permanent state of misery now...only the RE BS and spin to keep a gloss on this turd.

Banks fearful of the deflation trend putting down roots and doing them out of fat profits from farming the economy.

English in a pickle not sure whether to go with the flow and do stuff all in the budget or move quickly to prevent a sov downgrade...and meanwhile borrowing $50million a day to keep the party going.

by Nicholas Arrand | 23rd Jan 11, 11:14am 1295734480

..and in Shanghai, the bank interbank lending rate..".... has just surged to new multi-year highs and has literally exploded from 2.5% to 7.3% in a few short days."

There goes the cheap money for foreign property investment! Push the OCR down, Alan, and get the exchange rate export competitive; domestic spending on foreign goods down ( there's no painless way out of this ~ petrol etc. will be our price), and 'hot' money on it's way back to where it came from....

http://www.zerohedge.com/article/shibor-we-have-big-liquidity-problem

by Gummy Bear Hero | 23rd Jan 11, 1:03pm 1295740995

Are you daring to suggest that our illustrious leader , Big Hairy ........... ooooops , sorry --- Bernard Hickey ! ............ was wrong to exhort Bolly to jack up interest rates to stop the NZ housing bubble from beginning a second round of inflating ? ................. At least the NZMEA guys ( Less Rude and John Walley ) were on the munny , with their derision of Bolly's actions .

............ A petrol hike , due to a falling $NZ , is a price we need to pay , to get us competitive in exports , and to inhibit imports .

by Wolly | 23rd Jan 11, 11:35am 1295735704

Not a hope in hell oily....you might get some BS and spin about falling ceilings in the state sector that will save the nation but it'll be crap. English will put on a grand performance for the ratings liars with a bit of added fluff and tinsal for the natives.

Expect to hear of pay rises in the state sector and for the bums in Parliament. The whole argument will be that export incomes are going to be fabulous for years and years...so fab will they be that deficits will morph into surpluses and pink pigs will be seen over wgtn.

Long as you vote to keep these great managers in charge. Thing is the other bloody lot are almost braindead on economic matters and letting them back into power would be suicidal.

Best we go with the flow and keep an eye on everything.

by muzza | 23rd Jan 11, 6:10pm 1295759445

Come on Wolly, you go with the flow? You revel in swimming against the tide. But agree we don't want any Geens input, which will be likely for any Labour led government , they could reallly destabilise the economy, financial and property markets

by Kunst | 23rd Jan 11, 1:01pm 1295740881

Party clusters.

I don’t accept current political systems as such and would never fit in one. The introduction of MMP was good, but the political system needs further reformation.

We should learn and judge on 100 capable individuals representing our nation not on parties. I’m sick to hear left/ right – blue/ red/ capitalist/ communist/ - that rhetoric destroys a lot of progress - real development. As we are experiencing in parliament – just daily Kindergarten.

By the way in my team a number of ministers would have already lost their jobs, because of underperforming – in order to do that - get rid of party clusters.

The public/ media making parliamentarians accountable and not only parties would change the political/ economical landscape in New Zealand for the better dramatically.