Volksbank Wien expects to issue a debut public syndicated covered bond after a roadshow in the summer and is considering a benchmark, according to an official at the issuer, backed by collateral from fellow members of the Austrian cooperative bank network of which the issuer has become the central institution.

An official at the Austrian institution told The Covered Bond Report that it has not yet been decided whether the deal will be a benchmark or a sub-benchmark issue, but it is expected to follow investor meetings that are planned for June.

This comes after Moody’s on 9 March assigned the mortgage covered bonds of Volksbank Wien a Aaa rating – with the issuer requesting Fitch withdraw an A- rating of the same programme.

Volksbank Wien AG is the central organisation and largest member of the Association of Volksbanks (Volksbanken Verbund), a network of regional banks and specialised banks that are united under a joint liability and joint liquidity scheme. The association is nearing the end of a restructuring process that will by mid-2017 reduce its number to 10 – eight regional banks and two specialised banks – through a series of mergers.

Until the summer of 2015, Österreichische Volksbanken AG (ÖVAG) was responsible for the central organisational functions and liabilities – including covered bond issuance – of the association. These were transferred to Volksbank Wien when the troubled ÖVAG, which was bailed out by the Austrian government after the financial crisis, was divested and converted to a wind-down entity.

The group’s previous covered bond issuance includes publicly placed deals, but all have been below benchmark size and none were syndicated, according to the official at Volksbank Wien.

As of 31 December, Volksbank Wien had Eu1.53bn of mortgage-backed covered bonds outstanding, and its mortgage cover pool totalled Eu2.169bn. The mortgage collateral is exclusively Austrian and euro-denominated, comprised 90% of residential mortgages, 8% commercial real estate and 2% mixed use.

Moody’s assignment of Volksbank Wien’s Aaa covered bond rating came a month after it began rating the issuer itself. On 16 February, Moody’s assigned Volksbank Wien a first-time Baa2 deposit rating, an A2 Counterparty Risk (CR) assessment, and a baa2 baseline credit assessment.

On 3 March, Fitch upgraded the issuer default rating (IDR) of Volksbanken Verbund and its member banks from BB+ to BBB-, on positive outlook. The rating agency said the upgrades reflect the successful execution of the group’s risk reduction and restructuring programme, which it noted is now largely completed.

“The process has been well-controlled and executed, in our view, and the major restructuring progress achieved has greatly reduced execution risk,” it said. “The overhauled group structure and increased centralisation of risk controls and monitoring at the group’s central institution, Volksbank Wien AG, has also reduced complexity and strengthened the member banks’ cohesion.”

On the same day, Fitch upgraded Volksbank Wien’s covered bonds from BBB+ to A-, on positive outlook, as a result of the upgrade to the issuer. However, Volksbank Wien has since requested that the covered bond rating be withdrawn, and Fitch confirmed today (Monday) that it will withdraw the rating on or around 20 April.

Gerald Fleischmann, CEO of Volksbank Wien, said the rating actions confirm that after the reorganisation carried out over the last 18 months, the group is now capable of returning to the capital markets.

“At the moment, we are very liquid because we enjoy great trust in our savers,” he said. “The fact that we are able to return to the capital markets, if necessary, is in any case an important signal for the customers and employees of the Volksbanken.”

Photo: Volksbank Wien; Copyright: Robert Polster