Bloomberg News

Morgan Stanley Cuts Covered Bond Issuance Forecast on ECB Loans

March 23, 2012

Morgan Stanley (MS) cut its forecast for euro-denominated covered bond sales this year by as much as 47 percent after the European Central Bank’s program of cheap loans eased pressure on banks to raise cash from the secured debt.

Sales of the loan-backed securities may slump to as low as 100 billion euros ($132 billion) in 2012 from a November estimate of 190 billion euros, analysts Leef Dierks and Jason Somerville in London wrote in an investor note today. French banks, the biggest sellers of the notes this year, may cut issuance by 33 percent to 30 billion euros.

The ECB provided euro-area banks with more than $1 trillion of three-year loans in two so-called longer-term refinancing operations aimed at averting a credit crunch. The program bolstered investor confidence in the region’s banks and helped spur a rally in credit markets.

“Given the impact the ECB’s two 36-month LTROs have had on capital markets, we have revised our forecast,” the analysts wrote.

Net supply of covered bonds, the difference between new issues and securities that are redeemed, may shrink to about 13 billion euros from the previous estimate of 93.3 billion euros, Morgan Stanley said.

To contact the reporters on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net


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