BNP Paribus Issuance Raises Spirits—Update #1

As noted in an earlier post here, some finance industry observers predicted there would be no new European issues of “jumbo” covered bonds (i.e., at least €1 billion) until at least mid-2009.  So it was good news when the French bank BNP Paribus launched a five-year, €1.5 billion bond last week (Jan. 8) and met good market demand.

EuroWeek wrote that the issuance “confound[ed]” the skeptics.  A Dow Jones Newswires report called it “the first sign in months that this important sign of funding for European lenders is still available.”  According to the Cover, "bankers are hopeful that it will provide a cornerstone on which to build the asset class's recovery."

The dearth of covered bond issuances in their European heartland following the collapse of Lehman Brothers showed that this financing vehicle is not bulletproof.  But those who urge its development in the U.S. as an alternative to securitization can point to issuances like this one as proof of covered bonds’ potential for strength in the midst of an extremely difficult credit situation.