UK

The extent to which the residential mortgage backed securities market can be relied on for funding has become clearer with the launch of the first such transaction for a UK mortgage lender since August, Bradford & Bingley’s £1bn Aire Valley 2007-2 RMBS. Should the RMBS market prove healthier than expected, expectations of a surge in covered bond issuance from the UK and elsewhere could be tempered.

The UK Investment Management Association on Friday called for changes to HM Treasury’s planned Recognised Covered Bond framework to make it more prescriptive and requested a delay to its planned implementation on 1 January 2008. The move, which surprised most market participants who had been expecting a smooth transition to the new regime, was described as “incredibly unhelpful” by one leading player, but others were more sympathetic.

The Investment Management Association today (Friday) threatened the expected smooth progress of legislation in the UK when it called on HM Treasury and the Financial Services Authority to re-consider their proposals for the planned Recognised Covered Bond regime.

As revealed on The Cover yesterday (Wednesday), Barclays Bank is close to launching a covered bond programme, having incorporated Barclays Covered Bonds Limited Liability Partnership on Tuesday. The news reinforces the view that covered bonds will become an increasingly important funding tool in light of this summer’s turmoil, which has pushed up RMBS and senior unsecured funding costs sharply.

Barclays is thought to be close to entering the covered bond market as an issuer, having incorporated Barclays Covered Bonds Limited Liability Partnership yesterday (Tuesday).

Bradford & Bingley has dipped its toe back into the covered bond market this week, raising Eu450m through two short dated floating rate notes at prices reflecting the post-Northern Rock market.

Bank of Scotland, formerly HBOS, has reopened the UK covered bond sector with its Eu2bn seven year transaction, winning plaudits for once again taking a leadership position in the market.

Spread guidance of 16bp over mid-swaps for Bank of Scotland’s (formerly HBOS Treasury Services) new seven year benchmark has been well received in the first UK issue since the Northern Rock crisis struck after Nationwide had impeded HBOS’s previous attempt to reopen the sector.

Bank of Scotland, formerly HBOS, is expected to issue a seven year euro benchmark covered bond in the coming days.

Standard & Poor’s (S&P) today (Monday) issued a warning on the health of the UK banking sector in general, and UK mortgage-focused banks in particular, in light of the Northern Rock crisis and liquidity squeeze.

Breaking news: Bank of Scotland, formerly HBOS, has mandated Danske Bank, Dresdner Kleinwort, LBBW and Natixis for a euro benchmark covered bond issue to be launched and priced in the coming weeks. No further details were available at the time of going to press.

Fitch affirmed Nationwide Building Society at AA- yesterday (Thursday), with a stable outlook. Nationwide’s covered bonds were unaffected, remaining at triple-A.