Intesa Sanpaolo drew several billion of orders for a Eu1.25bn 10 year covered bond this (Thursday) morning, but syndicate bankers away from the deal said that initial price thoughts were unnecessarily cheap.

Leads Banca IMI, Barclays Capital, Deutsche Bank and Société Générale went out with initial price thoughts (IPTs) of the 220bp over mid-swaps area, before moving the spread 10bp tighter and ultimately pricing the deal at 200bp over.

Bankers away from the leads said that they had received unusually little information from the bookrunners, but that they understood orders for the transaction to have been around Eu5bn. Several said that the pricing was unnecessarily wide.

“It’s a name that the people want to buy and it’s a tenor that people want to buy, because it offers yield, so you have all the technicals in your favour, so the trade is going to work as long as you do that at a sensible price,” said a syndicate banker away from the deal.

Another syndicate banker away from the deal said he was surprised by the initial price thoughts, which he would have expected to be just slightly over 200bp over given that secondaries trade at around mid-swap plus 190bp.

“A new issue premium of 30bp is not what I would have recommended,” he said.

He added that the deal was in the right maturity given the lack of supply at the long end in the second half of 2012.

“Some insurance companies are extremely cash rich and are looking to invest in these kinds of bonds,” he said.

A third syndicate banker said that he showed the issuer a level of 190bp early in the week and that peripheral spreads have improved since then.

“It was the fastest revision of pricing on a covered bond that I’ve ever seen,” he added.

One of the syndicate bankers put the deal at around 100bp through BTPs, with the sovereign trading at around 300bp over.

“It’s clear that the Italian covered bond market’s pricing rationale is no longer directly related to the sovereign spread,” he said.

Another agreed, while suggesting that the wide IPTs were perhaps decided upon because of concerns about whether the covered/sovereign relationship would persist.

“The problem is that people look at the spread to sovereign and get very scared about it,” he said. “One day it probably is going to change and at that point someone will be left with a deal on their hands, but that isn’t going to be any time soon.”

The last Italian covered bond was a Eu1bn seven year for Intesa Sanpaolo that was priced at 245bp over mid-swaps on 7 September. That came after UniCredit had launched the first Italian covered bond in almost a year, a Eu750m long five year that achieved landmark pricing of 100bp through government bonds.

The syndicate officials said that the timing was right, with the market being “in great shape”. One added that Intesa had been sensible to wait until spreads came down from their previous high levels before returning to the market.

“In my point of view it was a smart move to go for that trade,” he said. “It was just the pricing that surprised me, not the trade itself.”

Another said that in spite of the deal’s flaws, he welcomed the transaction.

“At the end of the day it is good to see that such issuers can access the market at these levels,” he said.

BPCE SFH priced a Eu1bn issue yesterday afternoon after building a book of Eu1.4bn via BayernLB, ING, Natixis, NordLB and SG. The seven year deal was priced at 48bp over mid-swaps after initial price thoughts of the high 40s and guidance of the 48bp area.

Germany and Austria were allocated 50% of the bonds, France 12%, southern Europe 10%, the UK 8%, the Benelux 8%, Asia 7%, and the Nordics 3%. Banks took 43%, asset managers 42%, SSAs 7%, insurance companies 4%, and others 4%.