AIB lays blame on markets as it stalls bond sale

By on November 27th, 2014

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AIB put a planned bond deal on hold yesterday, blaming a deterioration in the markets after the plan to issue the new 10-year mortgage-backed debt was announced less than 24 hours earlier.

Investors and traders had been waiting for the deal – expected to be up to €1bn in size – to price yesterday.

The decision to stall the process left some market watchers scratching their heads. “I’m not aware of a decline in market conditions, but there could be a technical issue or a pricing hitch,” said Gary Jenkins, a bond market analysts at LNG Capital in London.

The cost of borrowing for the Government fell to an all-time low yesterday, and is usually a guide to general market conditions.

The European Central Bank (ECB) had also been expected to snap up a big chunk of the new AIB covered bonds as part of its latest asset-buying programme, which should have helped AIB’s deal.

The ECB started buying up European mortgage-backed securities last month as part of its stated aim to boost its balance sheet in an effort to revive Europe’s flatlining economy.

The ECB will still be expected to come in as a buyer when the AIB bond is relaunched, which could be as soon as tomorrow.

Markets are generally quiet on the US Thanksgiving holiday, which falls today.

“AIB Mortgage Bank yesterday announced that it had mandated banks to investigate the opportunity to issue in ACS format in the near future. The market tone in the last 24 hours has deteriorated, as evidenced by the postponement of a number of new issues in the financial institutions arena. As a consequence, AIB will continue to monitor the market for suitable windows,” the bank said in a statement issued to the Irish Independent.

Deutsche Bank, JP Morgan, Morgan Stanley, Natixis as well as Davy and Merrion Capital have been hired to manage the bond issuance for the bank.

The decision to stall AIB’s bond will heighten fears that the ECB’s aggressive bond buying of recent weeks, which included more than €7bn of mortgage-backed covered bonds, is distorting what was an orderly market.

The influential ‘International Financing Review’, a banking publication, said the ECB action is “turfing out real money investors from the market, storing up the risk of disenfranchising them and pushing them to look elsewhere”. The fear is that commercial investors are being pushed aside by the ECB which does not need to make a financial return on its investments.

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