Americas

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.

Nomura this week bought the investment banking and equities businesses of Lehman Brothers in Europe and the Middle East.

Toronto-Dominion Bank is setting up a Eu10bn covered bond programme that will be backed entirely by residential mortgages insured by the Canada Mortgage & Housing Corp. The move follows CIBC's similarly structured debut earlier this month, which signalled a change in direction for the Canadian covered bond market.

Moody's yesterday (Monday) cut Washington Mutual's covered bond rating from A3 to Baa1, and left it on watch negative, in an unexpectedly swift follow-up on last week's downgrade of the instruments from A2 to A3.

At a Washington conference on Friday representatives of the Department of Treasury, Congress and potential issuers tackled some of the questions that covered bonds must answer convincingly if they are to take hold among mortgage lenders and investors in the US. And while the Treasury made clear its opinion that the product’s time has come, it was by no means clear that their long term future is assured.

Moody’s yesterday (Thursday) downgraded WaMu’s covered bond ratings from A2 to A3.

Bankruptcies of this size are just not supposed to happen. At 5.30am London time this Monday, Lehman Brothers — one of the remaining investment banking giants of Wall Street — announced it was filing for Chapter 11 bankruptcy.

Toronto-Dominion Bank is said to be close to launching a covered bond programme, with a roadshow possibly taking place in the coming month. However, while TD’s programme has been expected for some time, its final shape could be different from how it had originally been envisaged.

Standard & Poor’s last (Monday) night cut the rating of Washington Mutual Bank (WMB) from BBB to BBB-, and Washington Mutual Inc from BBB- to BB-. The downgrade follows Moody’s downgrade of WMB, the sponsor bank of WaMu’s covered bond programme, from Baa2 to Baa3 last Thursday.

Lehman’s worst mistake was to get its timing wrong — six months ago it might have been saved by Hank Paulson. But Bear Stearns and the US mortgage agencies used up the Treasury’s willpower and that left Lehman horribly exposed and alone.

The House Financial Services Committee is set to hold hearings into covered bonds next year, according to sources in Washington, with momentum behind the product in the US having been given renewed impetus by the bailout of Fannie Mae and Freddie Mac.

• $3.9bn Q3 loss racked up after Alt-A hedging failure • $30bn plan to spin-off REI comes too late • Fannie and Freddie bailout euphoria wiped out Lehman Brothers was front, back and centre of events in the credit market this week and at the close in New York yesterday rumours gathered strength that Bank of America is poised to rescue the ailing investment bank.