The postponement of a MMB covered bond yesterday is a warning to issuers and syndicates of the risks of complacency in the closing stages of CBPP3, said bankers, who advise that the next issuers to enter the market must be cautious and may have to pay up.

“Yesterday was a startling wake-up call for the market,” said a syndicate banker away from the French issuer’s deal.

MMB (My Money Bank) SCF and leads ABN Amro, BNP Paribas, Crédit Agricole and SG launched the EUR500m no-grow seven year debut issue with guidance of the mid-swaps plus 15bp area yesterday morning. After more than three hours, the leads announced that the spread was set at 15bp with books at around EUR400m, excluding joint lead manager and issuer interest.

They subsequently pulled the deal, stating that the issuer will continue working with investors to ensure lines are in place before it returns to the market.

Bankers noted that it has been years since a euro benchmark covered bond has been postponed in the middle of bookbuilding, with Eurozone issuers at least having been able to count on a sizeable backstop bid from the ECB should a deal struggle. The ECB this week reduced the size of its typical order for primary market covered bond issues settling from October onwards, placing orders of around 10% after having typically placed bids of 30% previously. The impact of the reduced ECB bid was cited as contributing to the deal being pulled.

Bankers away from the leads questioned the approach taken.

“These things can happen to the best of us, but it is pretty extraordinary,” said a syndicate banker away from the leads. “On the one hand it’s extraordinary that a French seven year at 15bp over wasn’t able to generate more than EUR400m of demand, and on the other hand it’s also extraordinary that they went out with a level that didn’t see them generate more than that EUR400m of demand.”

Bankers away from the leads also questioned the choice of maturity, suggesting a more defensive five year tenor would have been more appropriate if demand seemed uncertain.

Some said the issuer had been unlucky that markets were hit yesterday by concerns over Italy’s budget, but that this alone was not enough to explain the deal’s struggles, noting that BNP Paribas Fortis printed a successful EUR500m seven year trade yesterday.

“Everybody knew that the Italian budget would have to be presented around this time, this is not unexpected,” said one.

Similarly, bankers said the issuer and its leads should also have had time to adjust in response to the reduction of the ECB’s bid.

On the back of the deal’s fate – but also noting that most issuers are well advanced in or have completed their funding plans – bankers said euro covered bond supply will likely be limited next week.

“I think people will be a bit sceptical about the next transaction that comes along,” said one. “This won’t have done anything to calm concerns about euro executions that issuers probably had already, so we will probably see less supply.”

Any issuers that decide to enter the market next week will probably have to offer a higher concession than they would have before the CBPP3 cut and MMB incident, bankers said, and must choose their tenor carefully, going either short or long.

“We were already expecting a correction in covered bond curves of, say, 3bp-5bp, after the ECB cut back,” said a syndicate banker. “That process might move a little quicker now if issuers decide to be cautious.”

Bankers expect such postponements to remain rare in the euro covered bond market, but said MMB’s case was a warning against complacency in the closing stages of CBPP3.

“This may be a very particular case, being an unfamiliar issuer, but nevertheless, this is something that will make people consider what they are doing very carefully,” added another syndicate banker.