Banco Desio aims to become a regular issuer of covered bonds following an inaugural Eu500m seven year issue last week, according to an official at the bank, who said the deal’s performance vindicated its approach and showed investors appreciated its quality despite its modest size.

The new issue, which was launched off a new Eu3bn programme established in July, was Banco Desio’s first deal in the wholesale markets since 2007, when it issued a Eu150m senior unsecured bond that matured in June 2012.

“The covered bond market is by far one of the most important source of funding for European banks,” Alberto Re, head of financial department, Banco di Desio e della Brianza, told The CBR, “and for our comeback to the wholesale market after our senior bond in 2007, we decided that the covered bond instrument was one of the most appropriate for our funding strategy, together with the retail funding, in terms of tenor and spread.”

“As you have seen, the saving versus the senior unsecured market is significant for European banks and in a low rates environment it is important to preserve the bank’s P&L.”

Banco Desio’s deal reopened the peripheral covered bond market, with the last deal from the periphery a Eu1bn 10 year OBG for Intesa Sanpaolo on 31 May.

Leads Banca IMI, BNP Paribas, Natixis, SG and UniCredit launched the Eu500m no-grow new issue last Tuesday with guidance of the 65bp over mid-swaps area. Guidance was revised to 60bp plus or minus 3bp, before the spread was set at 57bp on the back of over Eu1.6bn of demand.

Re said the issuer is satisfied with the outcome of the deal, noting that it attracted orders from more than 100 Investors, with 60% of the demand coming from foreign accounts, the majority of which were German and Austrian.

“For an inaugural transaction, investors asked for a premium versus the comparables,” he said, “and thanks to the strong support we were able to tighten the guidance from 65bp to 57bp, with an overall cost of funding below 1% and 47bp inside the 2024 BTPs.”

The deal tightened substantially after launch and was seen trading at around 40bp, mid, this (Tuesday) morning. Re said the deal’s performance proved that Banco Desio had adopted the right strategy.

“For us, it was very important to establish a point on the secondary covered bond curve which will enable us to have a direct reference when we will come back to the public market,” he added. “We are the latest Italian bank to approach the covered bond market and we are by assets the smallest among Italian issuers.

“The final outcome is solid proof of investors’ appreciation of Banco Desio’s credit quality.”

Re said Banco Desio aims to become a regular issuer in the covered bond market.

“We have not established a covered bond programme for a one-off transaction, but as an alternative source of funding versus our regular channels,” he said.

He added that the issuer has not yet taken a decision as to whether it will set up an EMTN programme for unsecured issuance, and said this decision would be based on the bank’s growth and funding needs.