UPDATE 1-Bankinter ignores earnings drop with 3-year covered bond

Thu Oct 18, 2012 7:07am EDT

(Recasts, adds background)

By Aimee Donnellan

LONDON, Oct 18 (IFR) - Second-tier Spanish bank Bankinter shrugged off earnings woes on Thursday, closing books for a EUR500m three-year Cedulas Hipotecarias some five-times covered.

Lead managers Bankinter, JP Morgan, Natixis and Nomura initially marketed the deal at mid-swaps plus 355bp area, but later fixed guidance tighter at plus 335bp as EUR2.5bn of orders came flooding in.

The deal is expected to be rated A3/A by Moody's and S&P, both negative outlook.

Risk appetite for Spanish bonds has been buoyant in the aftermath of Moody's affirming Spain at Baa3 on Tuesday. Earlier on Thursday, the Tesoro successfully tapped three-, four- and 10-year Bonos with evidence of decent interest from end investors.

At 335bp over mid-swaps, the Bankinter deal equates to a yield of around 4.195%, which in turn offers a 60bp pick-up to the underlying 3.75% October 2015 Bono.

Demand for peripheral bank paper has been on the rise this week, as evidenced by UniCredit's EUR250m tap of a January 2018 covered bond deal that attracted a EUR1.4bn book.

POOR RESULTS

Bankinter's deal follows news earlier on Thursday that its nine-month earnings halved, which is setting the tone for a sector still suffering the impact of a government-forced clean-up of toxic real estate assets.

However, Bankinter is among seven banks that passed an independent stress test on the country's banking system in September. The audit, a condition of receiving European aid, estimated a capital shortfall of EUR59bn across the sector in a severe economic downturn.

Spain's banks are gearing up for the first funds from a EUR100bn European credit line, agreed in June to prop up banks that were on the brink of collapse by a property crash, compounded by rising loan defaults in a recession.

This is Bankinter's second visit to the covered bond sector in 2012, having sold a EUR1bn five-year deal in March. That issue priced at mid-swaps plus 268bp, but has since widened out to 370bp bid, according to Tradeweb. (Reporting by Aimee Donnellan; Editing by Alex Chambers, Helene Durand, Natalie Harrison and Julian Baker)

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