They say you only get one chance to make a first impression. In the covered bond market memories of that first deal, and how it establishes an issuer’s relative value and reputation for fair treatment of investors, can persist long after the deal matures.
It also takes a lot of work over a long time period, something that Erste Group, GlobalCapital’s Best Bank for Inaugural Issuers, fully recognise. But ultimately that pays off, as Bernhard Leder, head of group origination and funding at Erste says “the effort you put into the first issue creates strong links with the issuer for the future”.
Erste have certainly converted many of their covered bond debutants into repeat customers across various asset classes and in particular, green issues. Oberbank, for example, this year turned to Erste to structure the first ever Austrian green covered bond, having previously trusted them with their debut covered bond in 2018.
The effort you put into the first issue creates strong links with the issuer for the future
In recent years many Austrian regional banks have launched their first syndicated covered bonds but before they hit the pages of GlobalCapital, Erste has been quietly acting for them on private placements for much longer, building pricing references and developing a dedicated investor group which eases the challenges of that first deal in the public markets.
The integration of the MTN desk into the debt capital markets function is, according to Stefan Rekelj, head of FIG and SSA origination and syndicate at Erste, a key part of the strategy to ease the issuer’s progress. As Rekelj puts it: “The set up helps…the issuers already know and trust the syndicate desk”. Leder adds that with valuations tight “issuers know that very good preparation is essential”. From documentation to virtual investor meetings, issuers readily turn to the team that they have been working with successfully for years in the private placement market.
It isn’t just syndication, other functions that are important to issuers but in too many other banks become ‘solutions’ teams with their own revenue targets at Erste are integrated in the DCM function, making it easier, particularly for issuers without the extensive investment bank coverage of the largest issuers to get support. Since 2018 this has been a strategy that has served them well, in particular for the smaller regional banks in Austria that have been coming to market in increasing numbers.
ESG being a case in point. Hypo Tirol, for example, turned to Erste’s combined covered bonds and ESG team to lead Austria’s first social covered bond – to fund affordable housing – in March this year, a deal which Susanne Endl, head of treasury, described as “the best deal that Hypo Tirol has issued in its history”.
It isn’t just Austria that is Erste’s regional strength. Their involvement as a bank in the CEE region goes way beyond covered bonds, giving them a vested interest in the development of capital markets more generally. And also, in lobbying, supporting, and advising regional issuers on topics such as resolving Swiss franc mortgage problems and adapting to Libor replacement stand them in good stead for the covered bond conversations too.
Developing covered bonds in new markets is a slow boil, but one with a huge potential upside for the region’s underdeveloped mortgage markets. Erste make a point of working with the bank working groups which liaise with the authorities on the development of new covered bond laws.
The combination of ESG, CEE and covered bond expertise has been delivering results for several years, as shown by PKO’s inaugural Polish zloty green covered bond that Erste was lead manager of in 2019.
When it comes to new covered bond jurisdictions, the integrated set-up that Erste prizes – sales, research, trading and origination working together – is particularly important. Investors and traders need help establishing first timelines in a country, sales need help understanding the product to be able to sell it, co-operation is key to bring a new type of deal to market.
In recent years CEE issuers such as VUB and Slovenska Sporitelna in Slovakia, mBank in Poland and Vakif Bank in Turkey have all trusted Erste on their debut benchmark deals.
An integrated team, a long term strategy and strong regional roots might be necessary, but they aren’t sufficient. As Rekelj puts it – “our key factor for success is the passion and motivation of the team members. It’s a lot of fun”.
According to issuers looking to make that good first impression, that’s exactly what they need.