ABN Amro is setting up a new covered bond programme for retained issuance, having set up an SPV, as the Dutch bank aims to at least partly replace its RMBS programmes, with a treasury official citing the greater efficiency of covered bonds for retained purposes, given costs, OC needs and haircuts.

The Dutch issuer has incorporated ABN Amro Covered Bond Company 2 BV. The establishment of such a covered bond company typically precedes the establishment of new Dutch programmes, in which they play a key role.

Michael Sittrop, long term funding and capital issuance, treasury, ABN Amro, confirmed that the issuer is establishing a new programme and told The CBR that this programme will be used for retained covered bond issuance, replacing the issuer’s retained RMBS portfolio.

“We have multiple RMBS programmes, largely retained for internal liquidity purposes and as collateral for the central bank,” he said. “This second covered bond programme is intended to replace these retained RMBS programmes going forward.

“It is not a funding programme.”

Sittrop said ABN Amro could not yet comment on when the new covered bond programme will be established.

ABN Amro has used its RMBS programmes primarily for retained issuances in recent years, as the last public RMBS issuance was in 2014. Sittrop noted that a year ago the issuer had four RMBS programmes with approximately Eu50bn outstanding, most of which was retained.

ABN Amro has been scaling down these programmes, and currently has two RMBS programmes outstanding.

“Our current covered bond funding programme is Eu40bn in size with approximately Eu29bn of bonds outstanding,” he added. “This will remain the programme used for funding transactions.”

The bank is replacing the retained RMBS portfolio because a covered bond programme will for ABN Amro be a more efficient instrument for retained purposes, said Sittrop.

“First of all, the retained portfolio that we had consisted of four different RMBS programmes, each with three rating agencies, so as you can imagine this could be more efficient,” he said. “From that perspective it makes sense to at least combine it into one programme.

“Taking into account the maintenance costs, required OC and Eurosystem haircuts, a covered bond programme proved to be the most efficient instrument for us.”

The issuer has chosen to establish a new programme specifically for retained issuance because it wants there to be a clear distinction for investors between the covered bond programme used for funding purposes and the programme used for retained issuance, added Sittrop.

Analysts said the new programme is likely to have a soft bullet structure, as does ABN Amro’s existing programme.

The ECB is due by year-end to adjust the haircuts it applies to retained soft bullet and CPT covered bonds to reflect “additional risks”, following an announcement of its plans to do so in November 2016.