Covered Bonds

In brief: HM Treasury has extended the UK government guarantee over certain liabilities of Bradford & Bingley to its covered bonds, clearing up the uncertainty left by its initial statement this morning.

While Santander has stepped in to take on Bradford & Bingley’s branch network and retail deposits, which will be transferred to Abbey National, the UK government has been left holding the bank’s mortgage book and wholesale liabilities. The outlook for its covered bonds is not, however, completely clear.

Moody’s and Fitch upgraded their ratings of the WM Covered Bond Program on Friday after it was confirmed that JP Morgan Chase had taken over the liabilities from the collapsed Washington Mutual.

The credit and (il)liquidity crisis struck Europe with a vengeance today (Monday), as the UK government took over Bradford & Bingley’s loan books and wholesale liabilities, Fortis was part nationalised by the Benelux governments, and Hypo Real Estate was forced to turn to the German government for funding.

Market participants at the Euromoney/ECBC Covered Bond Congress in Paris on Thursday agreed that smaller deals, possibly privately placed, might be a sensible option as long as the primary covered bond market remains closed.

Investors’ perceptions of the crises in Spain and Ireland are excessively pessimistic because of the way the media reports them, according to bankers at the Euromoney/ECBC Covered Bond Congress in Paris on Thursday.

Market-makers cannot be forced to provide liquidity. This was the verdict given by issuers, intermediaries and investors who participated on the secondary market panels on the afternoon of the Euromoney/ECBC Covered Bond Congress in Paris yesterday (Thursday). But there was less certainty about how to help the secondary market recover.

Here are the winners and runners-up in The Cover/ EuroWeek Covered Bond Awards, which were voted on by the market and presented, on 25 September, at the George V hotel in Paris.

Investors in Washington Mutual covered bonds looked set to enjoy a happy ending to the worries they have faced while the bank and its securities were being downgraded, with it appearing increasingly certain today (Friday) that JP Morgan has assumed them as part of its takeover of the assets and certain liabilities of the failed US bank. The move could also boost the prospects of covered bonds in the US and elsewhere, demonstrating their resilience to a bank failure.

The fate of Washington Mutual's covered bonds was unclear this (Friday) morning after the US bank was shut down by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation appointed receiver. JP Morgan has aquired the "deposits, assets and certain liabilities" of WaMu Bank, but there has been no word yet about whether this includes its covered bonds.

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