An initial high level of participation in the European Covered Bond Council’s Label initiative is a positive sign according to Moody’s, although it noted that comparability across jurisdictions is limited. Meanwhile, Spain came out worst with regards to data disclosure in a Fitch investor survey.

Martin Rast, Moody's

The ECBC’s Covered Bond Label came into effect at the start of the year and Moody’s said today (Monday) that within a week of its inception it took in 77 cover pools backing Eu1.4bn of covered bonds, which it said corresponded to a quarter of programmes by number and about 50% by amount outstanding.

“The initial high level of coverage is a positive sign, as the success of the database depends on it being consistently populated by large issuers,” said Martin Rast, vice president and senior analyst at Moody’s.

He said that the increased transparency allows investors to be better informed about covered bonds on a comparative basis. For example, information about regional distribution eases assessments of cover pools’ exposure to macroeconomic trends.

“All these indicators help investors quantify the credit risks of cover pools as part of their investment and monitoring processes,” said Rast. “This especially applies to countries where the legal framework gives issuers significant discretion to manage their programmes.”

However, he said that in spite of the good coverage, certain limitations remain.

“The comparability across different jurisdictions is limited, as, for example, any deviation in property value calculations distorts LTV numbers,” said Rast.

In an investor survey conducted ahead of the official launch of the Label, Fitch in December found that investors’ preferred source of information when monitoring covered bond programmes was issuer websites, which received 33.3% of votes (see here for more on the survey). Rating agency credit analysis and performance reports ranked second with 27.2% (although Fitch’s covered bond surveillance was listed separately and received a further 6.2%) and investment bank credit research third with 23.5%. Documents from industry associations received just 2.5%.

The industry association that has until now provided the broadest coverage of issuer information is the Association of German Pfandbrief Banks (vdp), which collates investor reports from its members on its website, and Germany ranked top when investors were asked which jurisdictions they are most comfortable with as regards data disclosure, with a 36% share. The UK came second, with 25%, while other jurisdictions each scored less than 10%.

Germany also ranked second when investors were asked which countries they are least comfortable with as regards data disclosure, with an 8% share, but Spain was easily considered the worst with a 64% share of responses.