UK

Barclays Capital’s analysts have slashed their forecasts for benchmark issuance in 2008 by Eu40bn, from Eu190bn to Eu150bn, lower than any bank was expecting only two months ago.

Bank of Scotland could launch the first UK covered bond under the country’s new legislation, having mandated Dresdner Kleinwort, Landesbank Baden-Württemberg and Natixis to hold a roadshow for covered bond investors starting in early March.

The UK sector of the covered bond market went from bad to worse this morning. Having already widened around 10bp over the past week, UK issues were wider still today after the release of Bradford & Bingley’s preliminary results.

UK chancellor Alistair Darling last night renewed the government’s backing for the country’s planned regulated covered bond framework in a speech to the EEF Manufacturers Biennial Dinner in London.

Major UK covered bond issuers and other market participants yesterday welcomed the legislative approach set to be introduced by HM Treasury in early March and overseen by the Financial Services Authority, on a panel at the IMN covered bond conference in London.

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.

The Cover understands that the UK’s covered bond framework is a step closer after the Financial Services Authority, which will be responsible for supervising the Regulated Covered Bond regime that HM Treasury will implement on March 6, yesterday revealed the timetable for its part in the process.

The UK government’s extension of guarantees relating to Northern Rock obligations on 18 December was seen as good news for covered bondholders. Moody’s downgraded Northern Rock’s bank financial strength rating from D+ to E+, but said that the extension “further underpins the Aa3 bank deposit and senior debt ratings”.

The UK’s Council of Mortgage Lenders (CML) has joined the line of supplicants at the Bank of England’s door, asking for assistance in funding £90bn of net mortgage lending next year. However, the UK’s Financial Service Authority (FSA) sounded a warning on growth in the mortgage sector, warning that lenders may have to sacrifice growth for liquidity.

Alliance & Leicester and Bradford & Bingley released trading updates today (Thursday) that showed they have both covered their funding needs well into next year, when they will be placing greater emphasis on winning retail deposits. Such statements, along with news that UK houses prices experienced their biggest monthly fall in 12 years and Bank of England data showing mortgage approvals down 31% on a year earlier, should further dampen forecasts for UK covered bond issuance in 2008.

Investors could be forgiven for playing it safe with regard to UK covered bonds given the mixed signals coming out of the country. Gloomy news included a damning report on UK mortgage brokers from the Financial Services Authority and a change to negative outlook for Alliance & Leicester’s senior unsecured rating by Standard & Poor’s, but there were rays of hope more directly relevant to covered bond holders from S&P’s report on prime UK RMBS and on Fitch’s covered bond rating for Abbey.

HM Treasury is delaying the implementation of the new UK covered bond regime until March 6, 2008, following objections to its earlier proposals for the Recognised Covered Bond regime.