Mediobanca followed Intesa Sanpaolo into the newly reopened Italian market with a EUR500m six year deal today (Thursday), but a marginally oversubscribed book and wider pricing than Intesa’s bigger, longer deal suggest further OBG issuance may not be straightforward.

The new issue comes after Intesa Sanpaolo yesterday (Wednesday) issued the first benchmark OBG since January, a EUR1bn seven year. Bankers said that deal, which attracted more than EUR1.5bn of demand, showed the market to be open for Italian covered bonds and teed up further supply despite recent political uncertainty in the country.

Mediobanca leads Crédit Agricole, Mediobanca, Santander, SG and UniCredit launched the six year obbligazioni bancarie garantite (OBG) this morning with guidance of the mid-swaps plus low 70s area. After around two hours, the leads announced that books were over EUR500m, excluding joint lead manager interest. The spread was subsequently fixed at 70bp and the size at EUR500m, with books still over EUR500m, excluding JLMs, around two hours and 50 minutes after books were opened.

Syndicate bankers said the more modest reception for Mediobanca partly reflected the difference between the two credits.

“It clearly went a lot slower than Intesa, but it is clearly the less shiny name of the two,” said a syndicate banker away from the leads. “They managed to get some movement in the price, but this is not a major achievement, and it looks like they were more or less just covered.

“But in the end, they got it going, and bearing in mind the dire state of the Italian plot, it is still not bad.”

The spread is, excluding deals from Greece and Turkey, the widest offered by a euro benchmark covered bond since March 2016, when Spain’s Bankia priced a EUR1bn seven year at 82bp over mid-swaps, and the widest offered by a benchmark from Italy since November 2015, when Banca Popolare di Milano priced a EUR750m 10 year at 78bp.

Bankers said the deal paid a new issue premium of around 20bp based on Mediobanca’s curve.

Intesa Sanpaolo’s seven year reopener was priced at 63bp over mid-swaps yesterday, also offering a new issue premium of around 20bp versus the issuer’s curve – although fair value estimates varied.

Syndicate bankers said the result could sow some doubt among other Italian issuers over the depth of demand for further OBG supply, but said some could still see the market as a viable option given its attractiveness versus alternative markets and given the ongoing support of the ECB’s covered bond purchase programme.

Maureen Schuller, head of financials research at ING, said the return of Italian banks to the covered bond primary market made sense given recent spread moves in the senior market.

“Thus far this year, Italian banks have been more active within the senior unsecured space than in covered bond primary,” she said. “With Italian preferred senior notes now trading three times as wide compared to two months ago, a shift to covered bonds makes sense from a funding cost perspective.

“At the same time, sovereign and covered bond spreads are stabilising, while trading levels through the sovereign have narrowed below the 150bp mark again in the seven year area.”

Photo: Mediobanca headquarters, Milan