North America

A commitment to hearings on covered bonds from Barney Frank, chairman of the House Financial Services Committee, two weeks ago promised the biggest breakthrough for the asset class in the US in 18 months, but the detail of the legislation proposed by congressman Scott Garrett that elicited Frank’s statement was of a similarly game-changing nature. The Cover spoke to market participants about what such legislation would mean for the development of covered bonds in the US.

Barney Frank, chairman of the House Financial Services Committee, on Wednesday committed to a hearing on covered bonds in December in response to Republican congressman Scott Garrett’s proposed amendment to the Financial Stability Improvement Act of 2009.

Bank of America’s covered bond programme was downgraded from Aa1 to Aa2 by Moody’s yesterday (Tuesday), after the bank decided against increasing the amount of committed overcollateralisation to a level consistent with a Aa1 rating.

Royal Bank of Canada last week demonstrated that there is domestic support for the covered bond product by pricing the first Canadian dollar denominated covered bond launched by a Canadian bank. Such evidence of a domestic investor base should serve to strengthen future covered bond offerings by RBC and its peers in other markets, and may attract international issuers to the Canadian market, bankers told The Cover.

Royal Bank of Canada yesterday (Thursday) became the first Canadian bank to sell a Canadian dollar denominated covered bond when it priced a C$750m five year issue. The transaction has left covered bond bankers in Europe puzzling over RBC’s rationale for the initiative, citing pricing that offered limited savings compared to senior unsecured debt.

Moody’s yesterday (Thursday) placed on review for possible downgrade the long term ratings of Bank of Montreal, citing pressure on the issuer’s profitability.

The Federal Reserve has for the first time assigned US covered bonds their own buckets at its discount window, giving them recognition that had been sought by proponents of the instrument in the US.

Legislation proposed by two congressmen does not, according to Moody’s, address the rating agency’s core concern that the cover pool of outstanding US covered bonds would have to be liquidated within 120 days of a sponsor bank default.

Compagnie de Financement Foncier has begun putting in place the necessary documentation to establish a 144A MTN programme to sell its covered bonds into the US, and is hoping to overcome potential obstacles to its application. Meanwhile, the French issuer yesterday (Thursday) tapped a Swiss franc bond.

Bank of America is considering whether to make changes to its covered bond programme to support its rating, after Moody’s downgraded the covered bonds from Aaa to Aa1.

Jerry Marlatt, who sits on the US Covered Bonds Council steering committee, has left Clifford Chance and joined Morrison & Foerster.

Moody’s yesterday (Monday) changed the rating outlook on Bank of Montreal from stable to negative.