North America

Important differences between Canada and the US in terms of their mortgage markets and economies mean that Canadian banks should be seen as strong names in the covered bond market, said speakers at IMN’s Covered Bonds – The Americas conference in Hollywood, Florida on Tuesday. But they said that although Canada’s market has developed more quickly than that of its neighbour south of the border, it needs a North American investor base if it is going to be able to progress.

As it has been in Europe, the lack of liquidity in covered bonds was criticised at the IMN Covered Bonds - The Americas conference in Hollywood, Florida yesterday (Tuesday). However, dealers said that they had listened to investors and were just waiting for the first new US issue to show their commitment to the product.

The Office of the Comptroller of the Currency on Monday published guidance as to how the banks it regulates can get the consent they need from it to issue covered bonds under the terms of the Federal Deposit Insurance Corporation’s policy statement.

The strengths of covered bonds were highlighted on a panel at IMN's ABS East event in Hollywood, Florida yesterday (Monday) afternoon, where recent developments in the European market, the Federal Deposit Insurance’s stance, and JP Morgan’s taking-on of Washington Mutual’s covered bonds were held up as encouraging for the US market.

The Federal Deposit Insurance Corporation plans to charge banks that use large amounts of secured funding such as covered bonds and Federal Home Loan Bank advances higher deposit insurance fees as part of a restoration plan detailed yesterday (Tuesday) to boost its deposit insurance fund. This could hit the attractiveness of covered bonds in the US, particularly when the risk weightings of Fannie Mae and Freddie Mac debt are being cut.

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 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.