North America

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.

Rating agency representatives yesterday afternoon discussed their various methodologies and the weight they give to legislative backing, a key issue as the market sees new structured issues from Canada and previous structured issuers, such as the UK, on the cusp of introducing a legislative framework.

With the covered bond market experiencing the effects of turbulent equity markets and economic gloom from the US, panellists at the IMN covered bond conference in London said that now was the time for a back to basics approach in the market.

Bank of Nova Scotia, the second largest Canadian bank by market capitalisation, is on a roadshow for its US$15bn covered bond programme, and is keen to follow Royal Bank of Canada (RBC) and Bank of Montreal (BMO) into the covered bond market. But when it comes to pricing, BNS is keen to position itself beside RBC rather than the wider BMO.

With the euro jumbo market closed in the short term and suffering supply pressures in the medium term, certain issuers have been sounding out the possibility of dollar transactions. Whether anything is possible in dollars is, however, questionable.

Bank of Montreal is set to price its Eu1bn five year covered bond at 24bp over mid-swaps today, paying 4bp more than Royal Bank of Canada did for its 10 year deal last week, after suffering from the wider than expected pricing of Banco Espiríto Santo’s Eu1.25bn three year deal at 20bp over on Tuesday.

The books were opened for Bank of Montreal’s (BMO) debut covered bond today and by mid-morning some Eu700m of orders had been placed, with the book continuing to build. The benchmark sized, five year euro deal is being marketed with guidance in the 24bp area and has yet to be refined.