North America

US covered bond legislation is creeping ever closer, despite not having universal support. Its backers hope President Obama will sign the act into law before the end of the year. Bill Thornhill reports.

Canada’s DBRS rating agency has published a review on the Canadian government’s covered bond consultation paper titled: no impact on Canadian bank ratings. Though there have been a large number of covered bond deals it says that none of the banks are close to the hitting the existing limit of 4% of total assets.

The Canadian Department of Finance’s consultative paper outlining a legislative proposal for a covered bond legal framework “would be credit positive for investors,” said Moody’s. However, because overcollateralisation is capped, the issuer’s rating would have to be above a certain threshold. Moreover, because only federally regulated institutions would benefit, other issuers such as CCDQ would be left out in the cold.

The Canadian government has published a draft consultation paper proposing a legislative framework for covered bonds. It says legislation will create a more robust product that will retain investor confidence in periods of market instability by providing legal certainty and setting minimum standards. It will also help financial institutions diversify their sources of funding.

The US House Financial Services Subcommittee has approved the Covered Bond Act 2011. The bill contains new amendments that strengthen and protect investors’ rights. Critically, investors, and not the Federal Deposit Insurance Corporation, continue to have a priority claim on the cover pool assets — both eligible and ineligible. The modified bill is now ready to proceed to the next stage.

The US Covered Bond Bill 2011 will head to the Subcommittee on Capital Markets on May 3 for a mark-up, where the legislation will be subject to amendments by subcommittee members. European covered bond specialists expect the mark-up may contain changes to mitigate Federal Deposit Insurance Committee (FDIC) concerns but Republican congressman Scott Garrett’s office says it is not possible to predict those changes.

On the back of conducive bank finance regulation, covered bond issuance is soaring, writes Bill Thornhill. Meanwhile several countries, most notably the US, are moving towards establishing fresh covered bond markets

US covered bond legislation is creeping ever closer, despite not having universal support. Its backers hope President Obama will sign the act into law before the end of the year. Bill Thornhill reports.

Abbey National was the sole benchmark covered bond issuer on Thursday, becoming the first repeat visitor to the sterling space this year, though other names are also expected to return. The comfortably oversubscribed £1.25bn 10 year print enjoyed strong participation from foreign investors, yet another encouraging sign of the sterling market’s growth.

Record covered bond issuance almost reached parity with senior unsecured issuance in the first quarter of 2011, a trend that is unlikely to be reversed by demand constraints on the product, said bankers this week. But widening spreads between the products could put the brakes on.

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.

Around 400 investors, issuers and bankers congregated at The Pierre hotel in New York this week for the third Euromoney US covered bond investor forum. The conference got off to an auspicious start, held just a week after the US Covered Bond Act 2011 was introduced in the House of Representatives. On the same day, Senator Charles Schumer announced that he would introduce legislation in the Senate.