Erste Group Bank came to the market with a Eu1bn 10 year benchmark yesterday (Wednesday) and the Austrian issuer’s head of long term funding told The Covered Bond Report how covered bonds fit in to its funding programme after its participation in the ECB’s LTRO.

Leads Barclays Capital, Crédit Agricole, Erste Group Bank and UniCredit built a book of almost Eu1.1bn within half an hour of opening, allowing the issuer to size the transaction at Eu1bn and fix the spread at the tight end of guidance of 130bp-135bp. The leads closed the books after one-and-a-half hours with orders in excess of Eu2bn.

Renee Bauer, head of long term funding at Erste Group Bank, told The Covered Bond Report that the ECB’s covered bond purchase programme (CBPP2) was helpful, but not essential.

“In 2009, we did the first jumbo on the back of the announcement of the first covered bond purchase programme,” she noted, adding that they had been too early to reap any ECB participation, but it had been a nice addition.

The issuer had been monitoring the market through January before deciding to launch a deal yesterday after issuance had tailed off the week prior.

“We decided now might be the time,” said Bauer.

She said the price was good, putting the new issue premium at around 5bp.

“It’s quite attractive compared to other transactions that came out at the beginning of the year, and paid a new issue premium of about 15bp,” she said.

Bauer compared the transaction with levels seen last year, citing a Eu1bn January 2021 priced at 72bp over now trading in the 120bp area.

A covered bond banker away from the deal put the new issue premium at 20bp, which he said “seems decent enough”.

Erste had estimated in December in a report that it needed approximately Eu3bn of wholesale funding in 2012, and according to Bauer the bank borrowed Eu3bn in a December ECB LTRO.  Bauer said the LTRO funding was also meant for Erste’s savings group and its subsidiaries, meaning it still had to raise between Eu3bn-Eu3.5bn in wholesale funding, with yesterday’s Eu1bn reducng its funding needs for the rest of the year.

Although the issuer said there was “no need for senior unsecured benchmarks” in the report, Bauer said the issuer is still looking to the senior unsecured market.

“We can issue entirely on the back of our covered bond programme,” she said. “We’ll see depending on how retail runs.

“We like to issue longer tenors in covered bonds and shorter in senior unsecured,” she added.

She said the bank had issued a 10 year because it best fit its cover pool.

“The success of the transaction was also due to the excellent quality of our cover pool that is Aaa rated and consists mostly of Austrian assets,” she said.

Germany was allocated 56%, Austria 24%, the Nordics 6%, France 4%, Italy 2%, the UK 2%, the Benelux 2%, and others 4%. Fund managers took 45%, banks 22%, insurance companies 15%, central banks 17%, and other accounts 1%.