Covered Bonds

The Federal Deposit Insurance Corp’s intransigent position on the US Covered Bond Act 2011 is likely to provoke increasing ire among US banks as they watch an influx of European issuers take advantage of liquidity in their own backyard.

The covered bond market has, so far, taken in its stride the resignation of the Portuguese prime minister José Socrates, following the parliament’s decision to reject austerity measures. A few offers have come in for Spanish paper while Portuguese bonds are too far and few between to gauge any meaningful reaction. But the underlying uncertainty is likely to mean that the primary and secondary markets will pause for breath.

The draft Australian covered bond law has been published. Bankers say it is a great first step, but the devil will be in the detail. The exposure draft envisages the possibility of issuing club deals similar to multi cédulas – but in this case probably issued by a regulated specialist bank, rather than an SPV.

London

Dexia MA has strongly countered comments released yesterday by M&G regarding pool transparency explicitly stating that it has never had a residential loan. The statement follows a press release from M&G stating that the borrower’s Obligations Foncieres are not what they seem because they are “full of assets originated elsewhere in the Dexia group (not French mortgages), including Belgian and Italian asset backed securities and Spanish mortgage bonds.”

Australia’s government released draft legislation on covered bonds on Thursday, giving bankers their first chance to scrutinise Treasury plans to open the market.

Australia’s government is preparing to release draft legislation on covered bonds tomorrow (Thursday), a spokesperson at the Treasury told The Cover. The draft will give bankers details on how the Treasury plans to open the market, and will be followed by a month-long consultation period.

Axa Bank Europe sold its second ever covered bond on Tuesday, a tightly priced Eu500m five year deal.

Caja Madrid became the latest Spanish name to come to market on Wednesday, though it did not enjoy the tight pricing of its compatriots. Its Eu750m three year cédulas hipotecárias came in the wake of twin Spanish deals from Banesto and BBVA on Monday, which priced inside initial guidance.

Northern Rock has been trying to play down the significance of its first public post-crisis securitisation, a £1.5bn prime RMBS. The state-owned bank was rescued by the UK government in 2007— the bank was heavily dependent on wholesale funding and struggled to finance itself when ABS markets packed up. Its reliance on securitisation was widely blamed for the bank’s fall from grace.

The Federal Deposit Insurance Corp’s intransigent position on the US Covered Bond Act 2011 is likely to provoke increasing ire among US banks as they watch wave upon wave of European issuers taking advantage of liquidity in their own backyard. DNB Nor Boligkredit and Swedbank are the latest to take advantage of this rich seam of competitive financing, raising as much as $4bn between them this week.