Deutsche bank sells Por­tu­gal notes as pe­riph­eral risk deep­ens

The Pak Banker - - Company& -

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

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