Americas

Moody’s Investor Services has downgraded Washington Mutual’s covered bonds from Aaa to Aa1. With concerns over the US housing market hardening, Fitch and Standard & Poor’s (S&P) have cut the rating of the bank itself and its ratings remain on their watch lists with negative implications.

The spread between obligations foncières and other French covered bonds has underlined the power of legislation, and the UK hopes its own new framework will pay off. But recent developments suggest a more complicated picture. The Canadian regulator, for one, has yet to be won over, and structured issuance in Germany has finally emerged.

The euro market has been closed to US issuers since the subprime crisis struck and European issuers have stayed at home after their successful transatlantic visits in early 2007. But the turmoil has made the US authorities look again at the merits of covered bonds and the noises coming out of Washington are encouraging.

Canadian Imperial Bank of Commerce’s planned covered bond programme will be backed solely by mortgages insured by Canada Mortgage & Housing Corporation, making it the country’s first public sector-backed issuance, in a sign of how banks are adapting their issuance to the new market environment.

Canadian Imperial Bank of Commerce plans to roadshow a new covered bond programme early in the second quarter, following in the footsteps of not only those officially in the pipeline, but a variety of other issuers who have been visiting investors but adopting a lower profile.

Some market participants are concerned that the policy statement that the Federal Deposit Insurance Corporation is drafting could be too restrictive on the amount of covered bonds US banks can issue. Meanwhile, the American Securitisation Forum has been lobbying the regulator to put forward the product’s case.

Sheila Bair, chairman of the Federal Deposit Insurance Corporation, is reported to have told a US conference yesterday (Monday) that she hopes to have a draft policy statement on covered bonds out in a month’s time.

The Federal Deposit Insurance Corporation (FDIC) has confirmed press reports that its chairman, Sheila Bair, is considering easing its stance on the interaction between covered bonds and the 90 day stay period in the US.

Canada’s credit unions are exploring ways of emulating Spain’s savings banks by issuing pooled covered bonds, said Gilbert Ménard, managing director, capital division, at the Office of the Superintendent of Financial Institutions last Friday. Indeed Charles Milne, associate vice president, treasury and funding services at Credit Union Central of British Columbia (CUCBC), has dubbed covered bonds “the new black” and is eyeing issuance in the third quarter.

Peter Freilinger, senior vice president and assistant treasurer at Washington Mutual, said today that he would like to see either the Seattle-based institution or Bank of America, the only other US covered bond issuer, selling a jumbo in the first half of this year. WaMu could also target US investors through private placements.

Sheila Bair, chairman of the Federal Deposit Insurance Corporation, last week reiterated her view that covered bonds could be the cure for some of the ills of the US mortgage market, saying that developing the market in the US had become a “front-burner issue”. While encouraging words about the future of covered bonds in the US from such an important player are most welcome, it is perhaps better for the long term fortunes of the market if any misconceptions are cleared up early on.

Sheila Bair, chairman of the Federal Deposit Insurance Corporation, yesterday (Tuesday) told the Reuters Regulation Summit in Washington that US regulators were working on ways to help the covered bond market’s development in the States, particularly given the way in which the failings of the originate and distribute model had exacerbated the sub-prime crisis.