Covered Bond transactions
During the meeting held on 4 December 2007, the Board of Directors of Banca CARIGE expressed a positive opinion on the implementation of a medium/long-term deposit programme for a maximum total amount of € 5 billion, that shall be carried out in the next five years, through the issue by Banca CARIGE of secured bank bonds (covered bondi) (hereinafter referred to as the "Programme"). Moreover, the Board granted USB (as arrangeri) and Natixis (as co-arrangeri) with the mandate to prepare the Programme.
During the meeting held on 14 April 2008, the Board approved the realisation of the deposit Programme and granted a mandate - with prior authorisation from the Supervisory Body - for the acquisition of up to 250 60% of the share capital of the SPV (Holborn Finance Srl), in which a 5% stake is already held. By means of a letter dated 24 July 2008, the Bank of Italy authorised the acquisition of the company. The Programme sets out the issue by Banca CARIGE of secured bank bonds' tranches of various durationi - in any case not lower than 18 months - and at different times, up to the extent of the maximum amount of € 5 billion. The issue date of the first tranche of secured bank bonds will be established according to the liquidity requirements of the Group and the capital markets' situation, for a maximum amount of € 1,305 million.
As part of the Programme, Banca CARIGE adopted the internal control procedures (also at Group level) suitable for the operational scheme set out for the issue of secured bonds, given the high operational and legal innovation and complexity level of these transactions and pursuant to applicable regulatory provisions and, in particular, to the supervisory provisions issued by the Bank of Italy on 17 May 2007 and subsequent amendments and additions (hereinafter referred to as the "Supervisory Provisions"). During the meeting held on 29 August 2008, the Board of Directors acknowledged the organisational model prepared by the Organisation Division for the implementation and management of the Programme. Banca CARIGE granted the auditi firm Mazars & Guerard Spa with the mandate to carry out asset monitor activities, i.e. the control of transaction compliance and the integrity of the guarantee in favour of investors. The controls and assessments made on transaction performance are subject to an annual report that is also addressed to the Board of Statutory Auditors of Banca CARIGE.
As part of the Programme, the Internal Auditing structure of Banca CARIGE carries out a complete control of the audits made, at least on an annual basis, also making use of the information received and the opinions expressed by the Asset Monitor. The results of these controls are notified to the Board of Directors of Banca CARIGE:
On a regular basis and for each transaction, the function in charge of risk monitoring of Banca Carige controls:
- the quality and integrity of the assets transferred, in particular the estimate of property value - both residential and non-residential - subject to mortgage in relation to the real-estate loans and mortgages transferred;
- compliance with the maximum ratio between the secured bonds issued and the assets transferred as security;
- compliance with transfer limits and integration methods;
- the real and adequate risk hedging offered by derivative contracts that are signed in relation to the transaction.
In order to allow the assignee company to comply with the obligations of the guarantee provided, Banca Carige uses suitable asset & liability management techniques to ensure substantial balance between maturities of cash flows generated by the assets transferred and maturities of payments due by the issuing bank with regard to the secured bank bonds issued and other transaction costs.
The Programme was structured in compliance with applicable regulatory provisions, which allow the issue of covered bonds with certain capital requirements for transferee and issuing banks.
The Bank carried out the assessments required by the Supervisory Provisions concerning the capital requirements for transferee or issuing banks as part of the transactions to issue secured bank bonds, as well as all necessary controls for compliance with transfer limits. More specifically, as at 30 June 2008, the total capital ratio of the Carige Group was equal to 10.22% and the Tier 1 ratio was equal to 9.51%. Based on these values, a transfer equal to 60% of eligible assets was carried out. As required by the Supervisory Provisions, Banca CARIGE made careful assessments on the objectives achieved and the risks linked to the implementation of the Programme.
On 16 November 2008, and effective as from 1 November 2008, loans deriving from property and commercial mortgage loans were transferred to Carige Covered Bondi S.r.l.. At the transfer date, the amount of outstanding loans, added to the residual capital of any previous loans with higher mortgage on the property, is not higher than 80% - for property mortgage loans - and 60% - for commercial mortgage loans - of the value of the guarantee property, as identified based on objective criteria.
This loan tranche was transferred at a price of € 1,505,288,305.39, equal to the recognition value of loans in the financial statements of Banca Carige as at 31 December 2007, increased by accrued interest and revenues and decreased by the amounts collected until the effective date of the transfer (1 November 2008).
The issue of the first tranche of covered bonds by Banca Carige was carried out on 11 December 2008. The issued securities - for a nominal value of € 500,000,000, listed on the Luxembourg Stock Exchange - have the following characteristics:
Nominal value: € 500,000,000.00
Price 100.00; Maturity 11/12/2010;
Coupons: quarterly deferred coupons
Rate: floating rate, at 3-month Euribor + 60 b.p.
Ratingi: Fitch AAA; Moody's Aaa.
The securities - which can be fully used by Banca Carige - are eligible assets that can be used at the European Central Bank for repurchase agreements.