Credito Emiliano priced a Eu750m seven year OBG aggressively on the back of a Eu2.9bn book yesterday (Thursday) and officials at the bank said the Comprehensive Assessment had given investors confidence, thereby helping it price its deal closer to Germany than Italy.

The deal was the first peripheral benchmark since the start of the European Central Bank’s covered bond purchase programme began at the start of last week (20 October), and is being followed up by Spain’s Banco Sabadell today (Friday).

Gabriele Minotti, head of funding at Credito Emiliano (Credem), said that the bank had long been targeting a covered bond towards the end of the year and various factors – notably the publication of the results of the ECB’s Comprehensive Assessment on Sunday – pointed to this week being the right time.

“We are quite a strong bank and as the AQR and stress tests were showing the market what the real numbers are we were sure this would provide a good opportunity for us to issue a new covered bond,” he said.

“And after that we saw the ECB in September announce its covered bond purchase programme, so we decided that around November would probably be the right time to go to the market.”

Daniele Morlini, head of investor relations at Credito Emiliano, meanwhile said that the TLTROs had also provided a positive backdrop to issuance.

“That was a good news because it reduced the amount of potential covered bonds in the market at the end of this year,” he said. “We can also take advantage of this because we have a growing balance sheet thanks to the fact that we are increasing our loans to customers.”

Morlini said that the bank also held a non-deal roadshow earlier this month to pave the way for a new issue, and that confirmations of Italy’s rating from Fitch and Moody’s also played into the bank’s timing.

When the Italian bank came with its seven year issue yesterday leads Barclays, BNP Paribas, Natixis, Nomura and SG were able to build a book of Eu2.98bn comprising 90 accounts and price a Eu750m deal at 25bp over mid-swaps. This came after initial price thoughts of the 30bp area and guidance of the 27bp area.

“The process for fixing the initial price talk was quite interesting,” said Minotti, “because we saw that big support would probably come from central banks and other official institutions that would be interested in a transaction.

“So we decided to open the book with IPTS at the plus 30bp area, and after that, in only 10 minutes, we had a lot of orders in the book, so it was quite easy to decide what to do. At the end we had nearly Eu3bn of orders, four times the issue size.”

Minotti said that the bank was able to take advantage of its timing to achieve an aggressively priced transaction to reduce its cost of funding, but at the same time the deal performed in the aftermarket, closing at 21bp yesterday, with investors therefore also able to benefit.

Minotti said that the issuer took some time deciding how to treat the orders from Eurosystem central banks under CBPP3.

“We were lucky not to be the first bank, because we could look at some information on the Nordea issue and its allocation process,” he said. “We decided to allocate the central banks as some good real money players and consider also the needs of other investors in the same way, because we want to return to this market in the future”

“We tried to be balanced and in the end I think we achieved this.”

Morlini said that the size and diversity of the order book, as well as the level that could be achieved, were a testament to the success of the Comprehensive Assessment.

“The Comprehensive Assessment in some way helped us with such a deal because it was really the aim of the Comprehensive Assessment to reduce the link between the sovereign and the cost of funding of banks” he said. “Having such a certification from the ECB was useful, in terms of seeing more names in the book.”

“Credem received orders from accounts that we had never seen before,” added Minotti. “In term of pricing we were able to issue at 88.5bp below BTPs, and at 58bp over the Bund, so we are nearer to German Bunds than BTPs – that’s quite outstanding.”

Morlini said the outcome was also positive for the ECB and European Banking Authority.

“Ultimately it was important for them to see deals coming from peripheral banks with a spread level more linked to the quality of the issuer instead of linked to the rating of the sovereign,” he said. “In that respect, we think this kind of transaction is in some way a proof of the job done by the ECB through the Comprehensive Assessment.”

Minotti said that Credito Emiliano has the collateral available for further issuance and plans to return with a new covered bond next year. The bank participated in the September TLTRO for Eu735m, the full amount it was eligible for.