North America

Bank of America and Washington Mutual have welcomed the Federal Deposit Insurance Corporation’s final covered bond policy statement. WaMu told The Cover that it will adjust its collateral pool to seek FDIC eligibility and a boost for the ratings of its programme.

The Federal Deposit Insurance Corporation’s final covered bond policy statement has been given a lukewarm welcome by market participants and observers who had been hoping that the regulator would lay the foundations for a broader, larger market and give covered bond-holders even greater privileges than those promised in the interim version.

The Federal Deposit Insurance Corporation yesterday (Tuesday) afternoon revealed its final covered bond statement, which will be the foundation of the US covered bond market. However, the final version contained few changes to the FDIC’s initial draft and dashed the hopes of several interested parties.

The US authorities’ intervention to stop Fannie Mae and Freddie Mac from failing and other positive news today (Monday) has been welcomed, but appears unlikely to be sufficient to encourage any jumbo covered bond supply this week. It could, however, let investors sleep easier in their hammocks.

If the US covered bond market is going to achieve the goals held out for it by the Treasury and others, it will need to win around a key constituency that has so far only engaged minimally with the asset class: US investors. The Cover asked John Cerra, managing director at TIAA-CREF, for his views on developments in the US and whether he could be won round to the product.

The Federal Deposit Insurance Corporation is expected to release its final covered bond policy statement next Tuesday (15 July), when it holds its monthly board meeting. The move should pave the way for the US Treasury to take the initiative and come out with its own policy on covered bonds.

Treasury Secretary Henry Paulson reiterated his interest in covered bonds playing a part in the US mortgage market at a Federal Deposit Insurance Corporation conference yesterday (Tuesday). The Treasury has meanwhile followed up its recent Washington gathering with further, more focused discussions.

In brief: The Co-operative Bank is the latest UK financial institution to have turned to covered bonds, setting up The Covered Bond LLP.

*Excludes German, French, Spanish and Nordic issuance.

McKee Nelson announced this week the creation of what is believed to be the first covered bond team at a US law firm. The Cover spoke to partner Kenneth Marin about the rationale for the move and its expectations for the US covered bond market.

Many government interventions since the subprime turmoil erupted last summer have been ill-advised and/or unwelcome. The US Treasury’s decision to get involved in the country’s stalled covered bond market is neither.

In brief: Barclays Bank has issued what are understood to be its first covered bonds, two £1bn (Eu1.26bn) floating rate notes. The bank is the latest UK issuers to have placed large sterling floaters since the Bank of England’s Special Liquidity Scheme (SLS) was established in April.