Bankers close to the first Australian covered bonds, for ANZ and Westpac, have defended their execution after market participants said this (Friday) morning that they had underperformed since pricing, were pitched too tightly, and were poorly co-ordinated.

The ANZ and Westpac debuts were said to be trading as much as 15bp wider than their re-offer levels today, after Westpac priced a $1bn five year at 115bp over mid-swaps late yesterday (Thursday) via Barclays Capital, Bank of America Merrill Lynch, Nomura and Westpac. This was the same pricing as ANZ’s debut, a $1.25bn five year sold on Tuesday by bookrunners ANZ, Citi, Nomura, UBS and joint leads HSBC and Morgan Stanley.

A syndicate official away from the Australian deals said that with Westpac having been seen traded in the grey market at 130bp yesterday and ANZ at 132bp, Nordic covered bonds had also been hit, with Nordea Eiendomskreditt 2016 paper, for example, having widened to 130bp over from around 105bp.

However, a banker close to the Westpac issue questioned the provenance of wider levels being cited on Westpac, saying that the deal was not yet free to trade and that if there had indeed been any trades wide of re-offer they could only have been for small amounts. Another banker said that ANZ, having been priced at the equivalent of 158bp over Treasuries, had traded at 160bp/155bp on the break, been traded in Australia at 158bp, and was at 164bp/160bp when Westpac was priced at 161bp (with the five year dollar swap spread having widened 3bp in the interim).

Some market participants said that pricing Westpac yesterday at the same level as ANZ on Tuesday made little sense given that already awful markets had deteriorated in the interim, and that ANZ had not performed.

But the banker said that although European markets had opened weakly yesterday morning, by the time New York opened the situation was much improved, with BTPs having recovered from a 40bp widening against Bunds to trade 20bp tighter on the day, an improvement that he said continued into this (Friday) morning.

“What should we do in that context?” he said. “Do we glue our eyeballs to all the ups and downs of the European markets? If so, we would do nothing.

“Or do we look at our soft order book, with $800m if indications of interest and it being clear that another $200m will come in, and go ahead? We had the ability to do a deal, investors were asking for it, ANZ had gone well, so we said: ‘Let’s do it.’ And we got there.”

Westpac’s order book was said to have reached just less than $1.1bn, which the banker said justified the $1bn size. ANZ had priced its $1.25bn deal off a $1.45bn book.

Bankers away from the two new issues also claimed that the pricing was misguided, offering an insufficient premium versus outstandings. One said that with the Nordea Eiendomskreditt five year deal at around 105bp over, a new Norwegian issue would be priced at 115bp-120bp, and that the Australians should have come even wider.

But bankers close to the Australian deals disputed this, saying that a consensus had emerged from roadshows around the 110bp-115bp level at which ANZ was first whispered, ahead of 115bp area guidance.

“They said it should come wider than Canada – because of the Canadians’ CMHC cover pools and proximity to the US,” said one, “but inside Nordics, because they are closer to Portugal and Spain.”

Another said that finding the correct pricing for Australia was always going to be a challenge.

“The fact of the matter is that it is a completely different animal to any comparables that are mentioned,” he said. “It is very easy to criticise the levels, but investor feedback was OK around the specific level.”

Market participants had ahead of the inaugural issuance warned that an apparent lack of co-ordination among the four major Australian banks – with Commonwealth Bank of Australia and National Australia Bank also preparing debuts – could cause problems, with investors being sounded by different issuers for different deals. NAB is said to have looked at the possibility of launching a new dollar issue at the beginning of the week, and again after ANZ was priced.

But a banker close to the Australians said that the issuers had not gotten in the way of each other, with the banks probably keeping in touch with regard to their respective plans.

CBA was meanwhile discussing a potential euro issue with investors after having mandated BNP Paribas, CBA, HSBC and RBS for a deal. According to a syndicate official, this was being talked at around 80bp over mid-swaps, putting it some 30bp wider on an after-swapped basis than ANZ. This is understood to have caused at least one investor to refrain from participating in Westpac’s transaction.

However, the Australians’ ability to get their deals away at such a level in the week’s market conditions was cited by a banker defending the issuance as a positive reflection on the inaugural supply.

“They each got $1bn at pretty decent levels,” he said. “Which European could have done that this week?”

Bankers away from the leads nevertheless said that they were astonished at the way in which the Australian debuts had turned out.

“How have such a long anticipated group of such strong institutions from such a great country ended up with this result?” asked one syndicate official.

And another said that the impact on Australia’s standing – and the implication for pricing in dollars for other issuers – was far reaching.

“The question is: why would such a solid jurisdiction needs to rush into the market at the wrong price?” said one. “Why risk a deal not covered at the wrong spread that is destined to widen, which it did?

“These are not one-off deals; the banks have significant funding to do in this space. It’s hugely disappointing and a shame.”