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Argenta adds covered to toolkit as pieces falls into place

Covered bonds became the latest addition to Argenta Spaarbank’s funding toolkit yesterday (Tuesday) with the launch of the Belgian’s debut, a €500m 10 year mortgage Pandbrieven whose success Argenta’s Christian Lambrechts attributed to the issuer’s efforts as well as market dynamics.

The covered bond programme further builds out Argenta’s wholesale funding options, which it has been expanding since 2015.

“Like most savings banks, we have traditionally been liability-driven, with a growing funding book that needs reinvesting,” said Lambrechts, director, financial management at Argenta, told The CBR. “100% of our funding used to come from retail deposits, but that changed from 2015 onwards, when our mortgage book began growing more rapidly than our funding base.

“As an initial reaction, our investment book declined somewhat, but then we started looking at alternatives to complement our retail funding.”

Argenta launched a Tier 2 issue in 2016, driven by MREL rather than funding needs, and then in 2017 began issuing “Green Apple” RMBS backed by Dutch mortgages. The bank had already issued RMBS in 2007 and 2008, albeit as retained issuance.

“We knew the product and already had systems in place,” said Lambrechts, “and as we had outsourced our operations in the Netherlands, we did not need to set that up on our own. We could therefore get to market much faster than would have been the case had we needed to set up a covered bond programme.”

Argenta then established an EMTN programme to further meet current and anticipated regulatory requirements, and has issued two senior non-preferred and one senior preferred deals off this totalling €1.5bn.

“Once that was done, the question was then, how are we going to develop and further diversify, and the logical step was to go for a covered bond programme,” said Lambrechts. “So at the end of 2019 we started to develop that.

“It’s not to replace any instrument,” he added. “It’s really to complement what we already had. We now have a very nice instrument to fund our Dutch business, and we also have a nice instrument to fund our Belgian mortgage business. The investor base is different, the geographies for the instruments are different, so we are now more complete in our funding sources, if I can put it like that, and we really hope that we can issue from them on a regular basis.”

After receiving the necessary licence for covered bond issuance on 19 January, Argenta began marketing its programme on Wednesday of last week (27 January). Lambrechts (pictured) said that although some investors knew the issuer from its other programmes, others – in Germany and Scandinavia, for example – were unfamiliar with it.

“We therefore spoke a lot about, who is Argenta?” he said. “Our business model is simple and transparent, and with the bank being family-owned, the focus is on the long term growth and financial health of Argenta, and not short term profit as is sometimes the case for listed companies.

“We also stressed that we have a low risk profile and high quality loan book, which translates into the quality of the cover pool. And we highlighted our solvency and liquidity positions – our solvency position is among the highest in Europe.”

Having announced that it was considering a seven to 10 year maturity, a 10 year maturity was announced on Monday, after more investors expressed a preference for the longer tenor, even if most were open to the whole range, according to Lambrechts.

“As a savings bank, the duration of our assets is typically somewhat greater than on the liability side, so for us the longer maturity is a natural hedge and 10 years was therefore welcome,” he said.

Yesterday morning, leads Barclays, Belfius (which also arranged Argenta’s programme), LBBW and Natixis went out with initial guidance of the 9bp over mid-swaps area for the €500m no-grow mortgage pandbrieven. Books topped €1.5bn after little more than half an hour and an hour later guidance was later revised to 4bp+/-1bp, WPIR, on the back of over €3.5bn of orders. The deal was then priced at 3bp, with over €1.8bn of orders good at re-offer.

“We had more than €3.7bn of orders at one point, which was more than seven times the amount we needed,” said Lambrechts, “and that was really much higher than we expected. We also expected some downward revision on the spread, but it went a little further than expected as a result of the success.

“All the pieces of the puzzle came together,” he added. “The roadshow was very intensive but very good, we got positive feedback on the Argenta credit, and undoubtedly the market was favourable, with the lack of supply supporting inaugural deals.”

While not querying the successful outcome of the deal, some bankers suggested the initial guidance had been unnecessarily wide, but Lambrechts said there was a consensus among the joint leads that 9bp was the correct level.

“You work with the information you have at the moment that you take the decision, and at that moment the guidance was a fair expectation,” he said. “It is then always down to the book to see what possibilities there are for the spread to move downward.”

The final book contained 72 accounts, with 33% allocated to Germany, Switzerland and Austria, 27% to the Benelux, 18% the Nordics, 7% France, 7% Asia, 4%, the UK and Ireland, and 4% southern Europe. Asset managers took 35%, central banks and official institutions 32%, banks and private banks 32%, and others 1%.

“I think we can be very proud of the result after an intensive year preparing for the deal,” said Lambrechts. “I would like to express my appreciation and gratitude to everyone who was involved.

“It’s very important that investors, dealers and we ourselves are equally satisfied with the result, and I believe that’s the case, so it’s promising for the future.”

Argenta intends to issue at least one benchmark per year if business evolves as expected and market conditions remain favourable.

Although the issuer has no concrete plans for green bond issuance, Lambrechts said sustainability has always been very important for Argenta.

“So if we would issue a green bond, then it would really need to be a green bond and no green-washing bond,” he added, “and that would take some time. But there will be a moment sooner or later that we will come with a green bond, that’s very likely.”