'Looking Forward to a Covered Bond Market'

“With the current financial crisis, the success of the covered bond market in Europe, and the support of the government’s financial leaders, it is increasingly possible that a covered bond market will emerge to complement the current securitization model in the United States.  It is reminiscent of the emergence of the securitization model during the savings and loan crisis of the 1980s.”

The assessment above has special weight coming from one of the world’s biggest accounting firms, PricewaterhouseCoopers.  It is found in an article from PwC’s Consumer Finance Group, titled “Looking Forward to a Covered Bond Market,” published in the group’s “Update” newsletter (Winter 2009).

The covered bond article covers a great deal of ground while featuring many useful specifics.  Among the topics:

• “The current market” lists four key characteristics of traditional securitization that may be making investors leery.

•  “A covered bond market”  briefly defines the term “covered bond,” describes three major attributes that could make the vehicle attractive in the U.S., and describes their development here so far.  It also discusses the two main potential issuance structures expected to be utilized in this country.

• “Differences between mortgage securitizations and covered bond issuances” features a chart contrasting the two types of issuances as to accounting, legal, structural, underwriting, and other considerations.

• “Benefits and drawbacks” of covered bonds discusses those elements from the standpoint of both the issuer and investor.  
• “Exploration” contains bullet points for potential issuers to consider in determining whether covered bonds would be well suited for their institution.

To download a PDF of PwC’s article, click on "Looking Forward" under “Attachment” below.

To download a PDF of the entire Winter 2009 issue of PwC’s “Update” newsletter (which includes the covered bond article), click on “PwC Update” under “Attachment” below.