Old school
For consistent leadership in a challenged euro market, a position at or near the top of the league tables and for combining an international focus with an old school touch, Landesbank Baden-Wuerttemberg is IFR's Covered Bond House of the Year.
For those in the covered bond market, the last year has not conformed to expectations, nor has it been easy.
At the back end of 2018, when the ECB was about to end its net covered bond purchases, many in the market forecast a year of rising spreads, with investors, for the first time in years, in the driving seat.
That did not come to pass. But the year brought with it different challenges as yields plummeted to record lows, requiring thoughtful and consistent leadership.
Indeed, as many covered bond bankers point out, in this unusual rates environment, it is harder to sell a super-safe euro covered bond than a high beta, high-yield Additional Tier 1.
Across that period, LBBW has consistently been one of the leading covered bond houses in terms of volume. Over recent years it has achieved a market share that put it behind only HSBC, a much bigger, global bank.
LBBW helped a number of issuers clear the hurdles associated with low to negative yields, running negative yielding deals from multiple jurisdictions and leading other issuers further out the curve.
LBBW is notable among its league table competitors in that the distribution of its covered bond mandates more closely reflects the now worldwide composition of the euro covered bond market.
Rivals tend to lean more heavily on their home markets. LBBW's country peers, in particular, have the advantage of their home market being the biggest covered bond market going – the historic home of the Pfandbrief.
But LBBW has worked to branch out and become a true international covered bond house, as demonstrated over the past year by repeat mandates for Canadian banks, a strong presence across the Nordics, increased UK coverage and a leading role in central and eastern Europe.
Key to that, said Patrick Seifert, head of primary markets at LBBW, has been developing a franchise that can respond to the different needs of clients.
That ability has seen LBBW chosen by many inaugural issuers to guide them to the market.
A case in point is Danish Ship Finance, a lender that LBBW worked with for years to prepare for its maiden voyage into euros.
Ship covered bonds bring with them a different set of risks for investors and have a slightly troubled legacy, but the Danish lender's eventual €500m long three-year debut found over €1.4bn demand.
LBBW has also been at the forefront of opening a new euro benchmark market in Slovakia, leading two deals from Vseobecna uverova banka, both totalling €500m, the first a five-year and the second a 10-year, and Prima Banka Slovensko, another €500m deal with an eight-year maturity.
The German institution secured one of the most sought-after mandates in the market, becoming the only non-French bookrunner on the first issue from Caisse de Refinancement de l'Habitat in six years, a 10-year deal that totalled €1bn.
Although it makes only rare forays outside the euro market, LBBW also has on its record one of the year's most highly regarded US dollar covered bonds, a US$750m Reg S green Pfandbrief for LBBW itself.
LBBW is a lead manager highly valued for its distribution capacity, building on but not limited to the obvious German bid, even though it has for many deals been unable to lean on its access to the German savings bank network as they do not buy at negative yields.
Issuers in particular praise the work LBBW undertakes after a transaction – working to support secondary liquidity and assessing how an even better trade can be delivered next time.
Aside from the challenging rate environment, market participants have also had to contend with periods of broader volatility. Issuers recognise LBBW's meticulous approach in helping them navigate the risks.
"It's like being a pilot – you do your check-list every time," said Seifert.
There is, Seifert said, no magic in it, just conservatism, taking time to analyse and avoiding quick conclusions.
"We are old school, in a world that appreciates that," he said.
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