Bloomberg News

Santander Reopens Spanish Covered Bond Market After 8 Months

February 01, 2012

(Updates with bank comment in seventh paragraph.)

Feb. 1 (Bloomberg) -- Banco Santander SA sold the first Spanish covered bonds in eight months, a day after reporting fourth-quarter profit fell 98 percent because of provisions for real-estate losses.

Spain’s largest lender priced 2 billion euros ($2.6 billion) of 3.25 percent mortgage-backed bonds due 2015 to yield 210 basis points, or 2.1 percentage points, more than the benchmark swap rate, according to data compiled by Bloomberg.

Issuance of the loan-backed notes has stalled for all but the safest lenders in the euro-area’s peripheral countries as the region’s debt crisis escalated. Santander’s offering is the first covered bond from a Spanish lender since it sold 1 billion euros of securities backed by public sector loans in May, according to UniCredit SpA data.

“It’s a very welcome signal for the market after eight months of abstinence,” said Leef Dierks, an analyst at Morgan Stanley in London. “Still, the market will only be available for the stronger names.”

Barclays Capital, Citigroup Inc. and Natixis managed the covered bond sale with Santander. A Santander spokesman in Madrid who declined to be identified wouldn’t comment.

Sales Revive

Banks issued 59 billion euros of covered bonds in January, the second-highest amount for that month since 2011, according to data compiled by Bloomberg. The European Central Bank’s longer-term refinancing operation, or LTRO, which flooded financial firms with 489 billion euros of cheap loans to avoid a credit crunch in December, is fuelling demand for covered bonds.

“Besides real money accounts and bank treasuries, some covered bond trading desks are looking to rebuild their inventories of Spanish paper after almost a year without any supply,” said Torsten Elling, the London-based co-head of rates syndicate at Barclays Capital, one of the arrangers of the deal. “Banks’ treasuries have already taken a large portion of the Spanish paper available in the market in order to invest the LTRO money.”

Santander’s net income shrank to 47 million euros in the three months ended Dec. 31 after it set aside 1.8 billion euros to cover soured property loans. Spanish banks are under pressure from the government to recognize more losses on real-estate assets that have built up on their balance sheets as a result of the country’s property crash.

--Editors: Andrew Reierson, Paul Armstrong

To contact the reporter on this story: Esteban Duarte in Madrid at

To contact the editor responsible for this story: Paul Armstrong at

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