Erste sold a Eu500m 10 year deal today (Thursday) with an almost four times oversubscribed book, demonstrating demand for Austrian covered bonds remains resilient in spite of other bank instruments from the country facing pressures.

Leads Erste, HSBC, Natixis, RBS and UniCredit began with initial price thoughts of the 10bp over mid-swaps area for the Eu500m no-grow deal, before setting guidance at the 8bp area on the back of books of over Eu1bn. The re-offer was set at 6bp with the books totalling almost Eu2bn and comprising 85 accounts, according to a syndicate official at one of the leads.

A banker away from the leads noted that, with Erste Group Bank having been out of the covered bond market for three years, there were few clear comparables for the deal.

Taking into consideration Erste’s outstanding February 2022 issue, trading around flat, and its January 2021 trading at minus 5bp, he suggested today’s deal offered a new issue premium (NIP) of around 2bp.

“At the 10bp area it offered a little bit,” he said. “It’s very difficult to pinpoint.”

Another syndicate official away from the leads noted that the levels of two other comparables – a Raiffesien-Landesbank Steiermark June 2028 trading at 6bp and a UniCredit Bank Austria January 2024 trading at plus 2bp – are of limited use when calculating premiums for primary deals as they trade at high cash prices and are squeezed. He estimated that today’s deal offered a NIP of around 3bp.

The sale was completed against a backdrop of volatility in markets for other Austrian bank paper, market participants noted. Some Austrian banks have suffered because of exposure to Russia and related markets and a Swiss National Bank (SNB) decision to abandon its cap on the Swiss franc, although bankers said that Erste’s exposure is limited.

“It’s a strong transaction because there was the risk that investors would shy away from Erste,” said a syndicate official away from the leads. “They are one of the Austrian banks that is least affected by Russia and the SNB, but there’s still a bit of negativity around the country in general.

“In the senior and the sub space there’s a lot of volatility around Austrian names at the moment. “Things have been shifting down and up very rapidly in the last few days, but covered bonds have been standing firm and it’s good to see the demand is there in the primary market as well.”

However, another banker away from the leads questioned the relatively small size of the deal.

“The markets were softer and more volatile following the Greece elections and yesterday was a day when some nervousness was reflected in other markets,” he said. “We also have those headlines around Austrian banks, but that’s clearly a different story and it’s not the kind of way that Erste is affected with its business model. I thought the small size could be a bit of an overreaction to the markets.

“That leaves a bit of a question mark, but Eu2bn is a good result. Hopefully it is laying the ground for some more issuance out of Austria.”

He added that issuing a covered bond, rather than another form of bank paper such as senior unsecured, was the right choice for Erste given current market conditions.

“At the moment it’s not the right surroundings for senior unsecured issuance out of Austria,” he said. “The tenor was also the right choice, as CBPP3 is triggering longer duration, with everyone looking for yield.”

However, another syndicate official away from the leads said Erste probably could have successfully sold in senior unsecured.

“They are the Austrian flagship, and they do not seem to be having a rough ride at the moment, like others are,” he said.

“I think Erste did well, but it wasn’t a difficult task in the first place,” he added. “This is not to minimise their success, it’s just that the market is as it is.”