Covered Bonds

Hypo Real Estate yesterday (Tuesday) applied to the German Financial Markets Stabilisation Fund (SoFFin) for a guarantee for a planned Eu15bn liquidity facility from the Bundesbank to cover the group’s short term liquidity requirements. In addition, HRE today (Wednesday) announced that it will seek additional support from the Stabilisation Fund, which may involve capitalisation measures.

The South Korean government has yet to approve the plans of any of the trio of banks eager to issue covered bonds, but it has no problem with the UK-style structure that Kookmin Bank, Woori Bank and Shinhan Bank have all opted for, according to a source in Korea.

In brief: Royal Bank of Scotland has appointed Allen Rad head of covered bond trading. The Cover revealed in July that he had left Dresdner Kleinwort to join the UK bank.

Storebrand Kredittforetak has increased its Nkr1bn April 2011 issue by Nkr500m (Eu58m), following DnB Nor Boligkreditt and Sparebank 1 Boligkreditt in building up unutilised holdings of covered bonds that it can use to access the Norges Bank liquidity facility that was announced on 12 October.

A new Danish central securities depositary in Luxembourg has made it possible for Danish mortgage institutions to issue covered bonds that are expected to be eligible as collateral with the European Central Bank and therefore more attractive for investors. Realkredit Danmark is from today (Tuesday) following Nykredit in using the new option.

Covered bond bankers last week watched an asset class get a drubbing, only this time it was not their team but their rivals in the sovereign, supranational and agency market. And like Spurs fans watching Arsenal get thrashed or Atlético supporters seeing Real go down, it was impossible for some to resist feeling a touch of Schadenfreude - although others warned against premature celebrations.

The Financial Services Authority’s announcement yesterday (Thursday) of a review of its position on covered bonds is believed to have been prompted by the unprecedented interplay between covered bond structures, deteriorating cover pools, central bank funding and rating methodologies that the crisis has thrown up.

On 15 October the Luxembourg parliament approved the amended lettres de gage law. The move introduces a new asset class backed by movable assets, a higher loan-to-value limit for residential mortgage assets, and a new minimum overcollateralisation level.

The Swedish government on Monday announced a rescue package for the country’s financial system, which includes a bank debt guarantee scheme, a stabilisation fund to manage potential solvency problems, and equity injections. However, in contrast to most other European rescue plans, new covered bonds issues are explicitly included in the Swedish guarantee.