Commerzbank Plans Covered Bonds for U.S. Investors

One of Germany's leading financial institutions — Commerzbank — has announced plans to offer covered bonds aimed at U.S. investors.

Michael ReutherThe announcement was made by Michael Reuther, a member of Commerzbank's Board of Managing Directors, during a German Investment Seminar held by the bank in New York Jan. 11-13. 

Reuther stated that Commerzbank plans to issue U.S. dollar-denominated bonds in the second half of 2010 and that the bank is considering how best to leverage its euro zone expertise in the covered bonds arena for the United States.

"We are considering to position ourselves in this market in the U.S.," Reuther was quoted as saying.

Commerzbank is an active issuer of covered bonds in Europe through its Eurohypo unit.  Before the global economic crisis, European issuers including Eurohypo showed notable interest in offering covered bonds for sale to U.S. institutional investors — and at least two actually did so.

In late 2006, Germany's Hypothekenbank in Essen reportedly sold 55% of a $1.25 billion public sector Pfandbrief (German legislative covered bond) in the U.S. The UK's HBOS had even greater success, reportedly selling more than 75% of a $2 billion mortgage-backed covered bond issue within the U.S. investment community.

Such targeting efforts by European banks have involved issuing dollar-denominated bonds under the laws of their home countries. Those efforts are distinct from the current push within the U.S. investment community to issue covered bonds as an aid to domestic U.S. financing. Some observers believe that development of a U.S. covered bond market will not be possible until and unless Congress provides a specific legal framework.