Deutsche Bank completes trades in new benchmarks
by Ben Poole
Deutsche Bank has completed a number of trades in the past week linked to new benchmark risk-free rates such as SOFR, €STR and SONIA. This is part of an active engagement to support industry-wide initiatives to replace interbank offered rate (IBOR) benchmarks such as the London Inter-Bank Offered Rate (LIBOR) with new benchmarks.
On 21 November, Deutsche Bank announced the issuance of a US$1.5bn fixed-to-floating rate Senior Non-Preferred (SNP) transaction linked to the Secured Overnight Financing Rate (SOFR). This was Deutsche Bank’s inaugural callable SNP bond. Furthermore, the SOFR-based coupon in the final year is designed to help the market transition away from LIBOR toward new risk-free rates, in this case SOFR.
Also in the past week, the bank cleared its first euro short-term rate (€STR) swap trade on the Eurex Clearing exchange. The bank says this was a milestone in both the establishment of €STR as the new benchmark risk-free rate, and in expanding Eurex’s EUR-denominated product offering.
In addition, Deutsche Bank’s European Commercial Real Estate (CRE) Group partnered with Kennedy Wilson Europe Real Estate II SCSp to originate its first loan benchmarked to Sterling Over Night Index Average (SONIA), an alternative to LIBOR. The loan referenced a compounded average of SONIA set in arrears with a five business day lag. It marked not only Deutsche Bank and Kennedy Wilson’s first LIBOR alternative rate loan, but also one of the first adoptions of a loan referencing an average of overnight SONIA in the entire market.
In Asia, Deutsche Bank completed Singapore’s second overnight index swap (OIS) for local bank DBS using the new benchmark rate, the Singapore Overnight Rate Average (SORA). An OIS is a type of interest rate swap, with its name derived from the fact that the floating rate references a daily overnight rate.
The bank's group treasurer, Dixit Joshi, said: “Through our benchmark transition programme Deutsche Bank is actively engaging in industry-wide efforts to implement IBOR reform. The four trades executed in the past week are a testament to the team’s efforts in educating clients on how the changes will impact them.”
Benchmarks including LIBOR, Euro Over-Night Index Rate (EONIA) and Euro Interbank Offered Rate (EURIBOR) that are embedded in mortgages, bonds and derivatives are being phased out and the industry is being encouraged to replace them with new benchmarks.
The process began in 2013 when the G20 asked the Financial Stability Board to review the benchmarks in the wake of revelations about benchmark manipulation. Later that year, the FSB recommended that existing benchmarks be replaced with more transparent alternatives. The UK FCA announced in July 2017 that after December 2021 banks will no longer need to take part in the LIBOR setting process if they don’t want to. Deutsche Bank is among the banks on this panel and is an active member of various industry working groups. Across the industry, all banks are now taking steps to prepare themselves and their clients for this event.
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