Cassa depositi e prestiti (CDP) has begun buying new Italian covered bond issues under the state-owned entity’s Eu3bn purchase programme, with UBI and Intesa OBGs its first buys, CDP officials told The CBR.

CDP headquarters, Rome

In November CDP announced a “Plafond Casa” initiative to stimulate residential mortgage lending, with up to Eu3bn allocated to purchases of obbligazioni bancarie garantite (OBG) issuance and securities of a similar nature.

The aim of the purchase programme is “to help improve the liquidity of this instrument, especially when the issuer is a small to medium-sized Italian bank, with the presence of a qualified institutional investor”, a spokesperson at CDP told The Covered Bond Report.

The intention is for this to help banks raise cheap funding by using their residential mortgage assets, with CDP’s involvement linked to issuers committing to use the funding to originate new residential mortgages, according to the spokesperson.

He said that CDP asks representatives at the issuing banks to sign, before a deal is closed, a letter in which the institution commits to “irrevocably undertake to allocate the net proceeds of the Notes underwritten by CDP to the granting of new residential mortgage loans to Italian residents” and, upon request, “undertake to provide CDP with evidence of that allocation”.

CDP will only buy OBGs under the purchase programme on the primary market, subject to eligibility criteria being met with respect to ratings, asset quality, and the maturity of the bond, with the size of CDP tickets capped at 25% of the total nominal bond amount issued, according to the spokesperson.

He said that CDP began purchasing OBGs in December and has bought a total nominal amount of Eu550m, with three issues in its portfolio.

Two of these are UBI Banca issues, a Eu1.25bn 3.125% October 2020 deal and a Eu1bn 3.125% February 2024 OBG. The 2020 OBG was priced on 7 October 2013, but according to the CDP spokesperson was reopened in December. The other UBI OBG was priced on Wednesday and due to settle tomorrow (Wednesday). The third issue that CDP invested in is a Eu1.25bn Intesa Sanpaolo 12 year OBG that was priced on the same day as UBI Banca’s most recent deal. Intesa’s transaction settles on Monday (10 February).

Italian supply has comprised the bulk of peripheral covered bond issuance so far this year (Eu3.75bn out of Eu5bn) and has been well received by investors, with deals typically comfortably oversubscribed. UniCredit SpA sold the first OBG of the year, a rare dual tranche transaction made even more unusual by the inclusion of a benchmark floating rate covered bond. The Eu1.5bn deal met with around Eu3.6bn of demand in total and was priced on 15 January. Intesa Sanpaolo and UBI Banca then followed with their aforementioned long dated deals on Wednesday, with Intesa drawing some Eu2.2bn of orders to its 12 year OBG and UBI around Eu4.5bn of demand for its 10 year issue.