CIBC Swiss Franc Covered Bonds: Q & A with Wojtek Niebrzydowski

Canadian Imperial Bank of Commerce (CIBC) took a new direction this month (Dec. 8) when it offered covered bonds denominated in Swiss Francs (CHF). CIBC's CHF 675 million (USD $657.89 million) covered bond issue contrasts with Royal Bank of Canada's (RBC's) decision earlier this year to issue covered bonds denominated in Canadian dollars.

 In an email interview with Covered Bond Investor™, CIBC'S Wojtek Niebrzydowski (VP, Treasury) provided some perspective on the Swiss Franc offering:

Why did CIBC decide to issue now in Swiss Francs rather than euros, U.S. dollars or Canadian dollars (like RBC)?  

Wojtek NiebrzydowskiCIBC's existing program allows for issuance in multiple currencies. We prefer not to issue in Canadian dollars, as we are of the opinion that given the characteristics of our program it could displace other more efficient funding sources available domestically.

In any event, one of the reasons behind establishing the program was to diversify funding sources and investor bases. We have full access to the euro denominated market, but a combination of wide foreign exchange basis and lack of full recognition of the relative value of our program makes a euro issue currently rather expensive.  A Swiss deal allowed us to price the transaction materially below where a comparable euro issuance can be done at present.

Regarding USD, that market has been effectively shut for covered issuance for over two years, and it will require significant time and effort to restart it.

Was CIBC aiming for a different investor profile with the CHF issue than it would expect to achieve with another currency?  If so, what was the reason for seeking a different profile, and what differences were anticipated?  How did this work out in practice?

Swiss investors participate in the euro market to a degree, but the local investor universe appears to be bigger for issuance in their domestic currency. Our inaugural CHF transaction proved again the attractiveness of the program, the issuer and Canada as a jurisdiction and allowed us to further diversify the investor base in a cost efficient manner.

Does CIBC anticipate more CHF covered bond issuance in the future?  If so, any idea how soon?  

Any future CHF issuance will be driven by a combination of economics, our funding needs and local investor demand.

Is there anything else you would like to say regarding the CIBC CHF covered bonds?

We are very happy with the trade, which we're led to believe was the largest CHF covered bond deal this year and has proven that even at the closing of the year there's demand for a quality issue.

In your view, would covered bonds as a funding tool benefit from covered bonds legislation in Canada?  Are you aware of any recent developments in the effort to establish Canadian covered bond legislation?

We believe that in the context of the European market, issuers in structured form are disadvantaged compared to those from legislative jurisdictions in terms of pricing and the size of the investor base.  To that effect, Canadian banks have formed a working committee under the aegis of the Canadian Bankers Association and have had several discussions with OSFI (Canada's federal banking regulator) and the Federal Ministry of Finance regarding the desirability of such legislation being implemented in Canada.  The subject is under review.