Covered Bonds

According to reports in the German press last week, Deutsche Postbank is to begin issuing mortgage backed Pfandbriefe in 2008, having requested a licence from the appropriate regulators, the Bundesbank and the Federal Financial Supervisory Authority (BaFin).

The primary market has been far from easy since the liquidity and credit crisis struck, so The Cover ran a league table to see just who issuers have been turning to in their hour of need. The results are surprising.

The extent to which the residential mortgage backed securities market can be relied on for funding has become clearer with the launch of the first such transaction for a UK mortgage lender since August, Bradford & Bingley’s £1bn Aire Valley 2007-2 RMBS. Should the RMBS market prove healthier than expected, expectations of a surge in covered bond issuance from the UK and elsewhere could be tempered.

The ECBC’s “eight-to-eight” committee of the leading market-makers and issuers this (Friday) morning discussed market-making in Washington Mutual covered bonds in light of New York Attorney General Andrew Cuomo’s announcement yesterday that his office is suing First American Corp for allegedly colluding with WaMu to inflate mortgage appraisals, which had caused its spreads to widen sharply in early trading. However, the committee of leading market-makers and issuers said that the issue was outside of its remit and said that dealers should take up the issue with WaMu.

The Cover understands that HM Treasury will make an announcement next week on whether or not it will delay implementation of the UK’s Recognised Covered Bond framework, which was expected to be effective from 1 January 2008. The possibility of such a delay was highlighted last Friday (October 26) when the Investment Management Association attacked the planned framework, and it has now said that it wants criteria relating to borrowers’ creditworthiness added to prevent the inclusion of “subprime” mortgages.

The Cover understands that HSBC has appointed Andrew Porter, previously European head of syndicate, to the new position of global head of covered bonds, as the bank makes a renewed push in the market.

Covered bonds did not escape yesterday’s global slide in equity markets unscathed this (Friday) morning, with the more volatile sectors widening. However, the stronger than expected non-farm payrolls announced at lunchtime could give more support to markets.

Because of holidays in much of continental Europe the covered bond market was quiet today (Thursday), with thoughts turning to which issuers will be the next to test the market after Santander completed the asset class’s resuscitation.

Depfa is setting up a 144A US MTN programme and is on the road in the States. Until now Depfa has issued its 144A benchmark deals on a standalone basis.

Banque Fédérale des Banques Populaires has mandated Natixis to arrange a Eu25bn covered bond programme to refinance prime home loans originated by the 20 members of the group.