North America

Fitch and Moody’s on Friday downgraded Bank of America NA, the sponsor bank of its covered bond programme, with the latter cutting the bank’s rating for the second time in just over a week.

Danske Bank launched the first government-guaranteed deal for a Danish bank this (Wednesday) morning. Bayerische Landesbank opened books on a SoFFin-backed deal, while unguaranteed senior supply has reached new areas.

Moody’s yesterday (Thursday) downgraded the issuer rating of Bank of America NA, the sponsor bank of its covered bond programme, from Aaa to Aa1 and assigned a negative outlook to the new rating. The move follows the completion of the bank’s takeover of Merrill Lynch.

Outgoing US Treasury secretary Henry Paulson yesterday (Wednesday) said that covered bonds could contribute to maintaining a private sector secondary mortgage market in the US. However, he added that the credit crisis will have to be resolved before a US covered bond market is likely to be established.

Canada’s credit unions are setting up a covered bond programme that will take the multi-seller model developed in Europe to the North American marketplace. The project already has provisional regulatory approval and an advisor has been appointed.

Fitch yesterday (Thursday) upgraded from AA- to AA+ the WM Covered Bond Program, which JP Morgan took over from Washington Mutual in late September when the latter collapsed. The ratings were, however, constrained as a result of JP Morgan dispensing with a feature of the programme that WaMu had previously added to support the covered bonds’ ratings.

The Securities Industry & Financial Markets Association and the American Securitization Forum yesterday (Tuesday) announced the creation of the US Covered Bonds Council to develop and promote the market in the US.

The Securities Industry and Financial Markets Association held the inaugural meeting of the US Covered Bond Council steering committee in New York yesterday (Wednesday) afternoon. Meanwhile, a member of Sifma’s US covered bond traders committee has left his firm.

Federal Reserve chairman Ben Bernanke said that covered bonds had attractions for mortgage finance in the US in a speech on Friday on possible alternatives to Fannie Mae and Freddie Mac. However, he warned that competition from the Federal Home Loan Banks could stymie their development.

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.