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Investors launch transparency initiative for covered bonds

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CMA Covered Bond Investor Council (CBIC), an industry body representing a diverse range of investors in the European covered bond market, and operating under the auspices of the International Capital Market Association, has launched an initiative aimed at setting transparency standards for covered bonds.

Covered bonds have become an increasingly important component in the funding of financial institutions in Europe, because they provide cost effective funding, with a low execution risk, long maturities, and help issuers and investors diversify their portfolios of liabilities and assets respectively. The structure and security of covered bonds have set this asset class apart and they have remained largely acceptable to an increasing number of investors throughout the turbulent conditions of recent years.
Recent growth of the European covered bond market has lead to a degree of fragmentation in the level of information provided to investors on individual issues. Faced with a rapidly expanding covered bond universe investors are increasingly in need of comprehensive and readily comparable information in order to make informed investment decisions. The CBIC initiative proposes agreed transparency standards for issuers in this market based on the information requirements of investors.
Andreas Denger (pictured), senior portfolio manager at MEAG Munich Ergo Asset Management GmbH says: “It’s not just new covered bond investors who are raising questions about transparency. Traditional buyers also have also increasing needs for comparable and standardised information on the issuer, collateral pool characteristics and key definitions. We believe that most of this information can be provided relatively easily by all issuers.”
The proposal issued for consultation today includes a detailed list of the required data fields and their definitions, agreed by investors. The aim is that the exercise will result in the publication of widely accepted voluntary standards of disclosure for covered bond issuers in Europe by September of this year.

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