CBA puts covered bonds on hold
(24 November 2011 — Australia) A surge in borrowing costs has forced Commonwealth Bank (CBA) to delay its plan to raise lower-priced funds by issuing covered bonds to global investors.
The latest deterioration in Europe’s debt crisis pushed up the cost of issuing covered bonds, as investors are nervous about lending, even to safe borrowers.
A CBA spokeswoman told The Sydney Morning Herald the bank had been mulling its first covered bond issue in Europe in recent weeks, but plans were now on hold.
''While investor interest in CBA as an issuer and the CBA covered bond structure has been very strong, heightened market volatility has meant the best path of action for CBA and our investor base is to continue to monitor the markets rather than execute a potentially poorly performing transaction,'' the spokeswoman said.
Covered bonds have been touted by the government as a way to take the pressure off bank funding costs, but a senior Reserve Bank official this week said the bonds would not cut funding costs.
The delay comes as local banks face the challenge of raising more than A$80 billion from jittery global credit markets in the next calendar year.
ANZ and Westpac last week launched their first covered bonds, but sources said the money was raised at more expensive rates than expected.
Covered bonds are intended to offer banks cheaper funding than unsecured debt, because investors in covered bonds have preferential access to bank collateral in the event of a collapse.
A CBA spokeswoman told The Sydney Morning Herald the bank had been mulling its first covered bond issue in Europe in recent weeks, but plans were now on hold.
''While investor interest in CBA as an issuer and the CBA covered bond structure has been very strong, heightened market volatility has meant the best path of action for CBA and our investor base is to continue to monitor the markets rather than execute a potentially poorly performing transaction,'' the spokeswoman said.
Covered bonds have been touted by the government as a way to take the pressure off bank funding costs, but a senior Reserve Bank official this week said the bonds would not cut funding costs.
The delay comes as local banks face the challenge of raising more than A$80 billion from jittery global credit markets in the next calendar year.
ANZ and Westpac last week launched their first covered bonds, but sources said the money was raised at more expensive rates than expected.
Covered bonds are intended to offer banks cheaper funding than unsecured debt, because investors in covered bonds have preferential access to bank collateral in the event of a collapse.
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