North America

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.

Bankruptcies of this size are just not supposed to happen. At 5.30am London time this Monday, Lehman Brothers — one of the remaining investment banking giants of Wall Street — announced it was filing for Chapter 11 bankruptcy.

Toronto-Dominion Bank is said to be close to launching a covered bond programme, with a roadshow possibly taking place in the coming month. However, while TD’s programme has been expected for some time, its final shape could be different from how it had originally been envisaged.

Standard & Poor’s last (Monday) night cut the rating of Washington Mutual Bank (WMB) from BBB to BBB-, and Washington Mutual Inc from BBB- to BB-. The downgrade follows Moody’s downgrade of WMB, the sponsor bank of WaMu’s covered bond programme, from Baa2 to Baa3 last Thursday.