United States

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.

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.

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.

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.