Deutsche bank sells Portugal notes as peripheral risk deepens
LISBON: Deutsche Bank AG increased a sale of notes linked to Portuguese stateowned bank Caixa Geral de Depositos SA, even as the risk of default for the euro region's peripheral countries soared to record levels.
Deutsche Bank added 15 million euros ($19.7 million) to the five-year notes on Nov. 29, boosting the total size to 40 million euros, according to data compiled by Bloomberg. The notes, first sold in September, use the income from Caixa Geral bonds to pay investors a coupon of 2.5 percentage points more than the three-month euro interbank offered rate, or Euribor.
The credit-linked notes were sold to individual investors and are tied to Caixa Geral's floating-rate bonds due in 2013. Investors putting money into the underlying bonds would currently receive a yield between 9.28 percent and 10.16 percent, according to Banco Santander SA.
"No real-money account would buy this stuff as they can cherry-pick these bonds" in the market, said Michael Heemelaar, head of global credit investing at F&C Asset Management Plc, a Londonbased firm that oversees 98 billion pounds ($153 billion). "From an investor's perspective, it's ridiculous."
Credit-linked notes are usually sold to investors who might have difficulty accessing the underlying bonds, while earning fees and raising money for the issuing banks. The securities also allow banks to hedge their holdings by transferring risk to noteholders, according to F&C's Heemelaar.
Deutsche Bank's notes were issued at 96 percent of face value to its unit in Portugal, which is distributing the securities, according to the prospectus. The notes pay investors a total annual coupon of 3.53 percent based on Euribor's current rate of 1.027 percent.
Stacey Coglan, a Londonbased spokeswoman for Deutsche Bank, declined to comment on the transaction.
Credit-default swaps on Portuguese bank and government debt surged this week as a bailout for Ireland failed to calm investor concerns that Europe's debt crisis will deepen. Contracts on Caixa Geral soared to a record 580 basis points Nov. 30, according to CMA. The swaps, which investors use to bet on a borrower's ability to repay debt, were 71 basis points at the start of the year.
Portugal debt swaps rose to a record 543 basis points this week, and were at 466 today, up from 379 at the end of last month, according to data provider CMA. -PB News