Westpac waits for right time to issue NZ$1.8 bln of covered bonds; ANZ ready to go too

Westpac waits for right time to issue NZ$1.8 bln of covered bonds; ANZ ready to go too

By Gareth Vaughan

Westpac New Zealand is set to resurrect the 1 billion euro (NZ$1.8 billion) covered bond issue it delayed in February when the pricing's right, says CEO George Frazis.

Frazis told interest.co.nz the issue was ready to go and would fulfill Westpac's funding requirements for 12 months.

"We’re actively looking at when’s the right time from a price perspective to do that," Frazis said. "There’s no hurry for us because our funding and liquidity position is quite strong and our (funding) term is quite long. But having said that, as soon as the window’s right, we’ll go for it."

The bank delayed its inaugural covered bond issue in February - in the same week the devastating earthquake hit Christchurch - blaming politicial turmoil in the Middle East. The issue is targeted at European institutional investors.

Meanwhile, ANZ New Zealand chief financial officer Nick Freeman says his bank is also ready to go on a covered bond issue.

"We are prepared for a covered bond issue," Freeman said. "The timing of which will depend on our requirements for funding. At the moment, because customer deposits have been strong across the whole system, the timing has become a little more discretionary."

"But we see that as one more arrow in the funding quiver and from that perspective we would anticipate doing a covered bond deal when the timing's right," Freeman said.

Covered bonds are senior debt instruments backed by a dedicated group of home loans assigned to provide security for the debt known as a “cover pool.” Popular in Europe, they are usually issued for terms of between five and 10 years. The way they're structured means if the issuing bank defaults, the assets in the cover pool are carved off - or ring fenced - from the bank 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 have been banned by the Australian Prudential Regulation Authority (APRA) as, in the event of a default by the bank issuer, depositors’ claims are diluted. However, the Australian government decided in December to change the law, and has introduced legislation to allow banks there to issue covered bonds.

Unlike Australia, there has been no specific law preventing banks from issuing covered bonds in New Zealand. The Reserve Bank says it's comfortable with banks using up to 10% of their total assets as collateral for covered bonds.

So far the BNZ is the only New Zealand bank to have issued covered bonds. Since its first issue last June, BNZ has issued NZ$2.57 billion worth in total with issues both to European and local institutional investors.

Based on its total assets of NZ$5.78 billion NZ$57.8 billion at March 31, BNZ could issue covered bonds worth up to NZ$5.78 billion. The bank says prudent use of covered bonds is likely to form an important part of BNZ's funding mix over the coming years.

ASB, Kiwibank and TSB Bank have all expressed interest in at least considering issuing covered bonds.


This article was first published in our email for paid subscribers this morning. See here for more details and to subscribe.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


Seems that BNZ has no assets, NZ$5.78b???

Sorry KingKobra, that should be NZ$57.8 billion.

Go for it Westpac. I won't be putting any term deposits with you when you do.

Trouble is they all will do so.....maybe TSB or Kiwibank will not........so it comes back to the Govn intrinsically backing depositors ie they will have to step in to offer a guarantee or bankruns will take banks out......the Q is how to get around that, splitting the retail and lending apart seems the only way.


Idiocy...the banks have engineered an endless recession...and they are too bloody thick to realise it...today we have sme and micro firms...the backbone of the private employment sector, in deep shit....broke...on the bones of their arse....WHY?

The recession would not be here had the banks not gone bloody mad in their own sick bubble of fake growth. It is the weekly parasitic extraction of mortgage payments from the fools who were sucked into the banking scams, which is resulting in a market that is dead in the water. They have no fecken money left to spend and are scared witless.

Forget all the crap and spin English paints his bloody budget in....meaningless drivel...almost as useless as Cunliffe and Labour....the truth is the recession level of new normal will not improve until the govt and its lacky the RBNZ have seen the destruction of another 30% off the Kiwi$.....circa 2021.....suck on that

The rebuild in Chch is more likely to expose the shoddy weakness in the economy since the required skilled labour has buggered off to aus...the end result can only be a staggering rise in the cost of building sector labour...what else will attract the labour back from aus....and you can forget the silly idea that prison labour will be used....about as insightful as Gerry's campervan brainwave.

What will this rise in labour cost do to the building sector activity elsewhere in NZ....it's not rocket science is it....!


Drug of last resort ? Attractive funding source? Or Dodo?

On i.co.nz 28/03/2011 - "ANZ CEO says prefers Asian deposit funding to covered bonds, which are 'an enriched form of securitisation' and a 'drug of last resort' ".
On i.co.nz 06/05/2011 - "Meanwhile, ANZ New Zealand chief financial officer Nick Freeman says his bank is also ready to go on a covered bond issue."

On i.co.nz 06/05/2011 - "The bank says prudent use of covered bonds is likely to form an important part of BNZ's funding mix over the coming years."
On i.co.nz 06/05/2011 - "BNZ chief financial officer Ken Christie said the 1 billion euro, seven-year covered bond issue had also weighed on margins given weak lending growth meant BNZ was sitting on most of that money."


How does issuing Covered Bonds weigh on bank margins?

Isn't the whole point of this type of bank funding meant to reduce offshore borrowing costs.

The bank got greedy KK and now it sits on the loot earning nothing but costing heaps and hence the margins have turned pear shaped....there is desperation to entice more suckers to the bank to borrow mortgage credit and so produce a return on the CB gamble. To catch the suckers in this recession means offering rock bottom rates...but such rates will not produce enough and will impact on all the other mortages the bank has sold......QED they shat in their own nest...!