Covered Bond Roundup - Week Ending February 5

Concern over "seepage" from sovereign downgrades ... predictions of continuing downward ratings pressure this year ... a benchmark covered bond from France ... UK "mortgage rationing"? ... and more.

Some items of covered bond news do not rate their own story in this publication — often because they relate to geographic areas outside our focus, North America.  Even so, readers who want to keep up with covered bond news in general might find them interesting.

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EUROPE (in general)

• Under an alarming headline ("Next up for Europe, covered bond catastrophe?") Tracy Alloway of the Financial Times' FT Alphaville writes: "With a raft of sovereign downgrades currently looming over Europe (Greece, Spain, Portugal, the UK, and so forth) then, the issue is whether that could seep into the covered bond market."

• In a media release (Feb. 4) accompanying its "2010 Outlook & 2009 Review" for covered bonds, Moody's Investors Service wrote: "The downward pressure on covered bond ratings in Europe, the Middle East and Africa (EMEA) experienced during 2009 is set to continue in 2010....  Given the strong link between covered bond ratings and the credit strength of their issuers, many of which are financial institutions, downgrades of the issuers' ratings were the trigger for the vast majority of the negative rating actions on covered bonds in 2009.  Moody's expects this to remain the case in 2010, especially given that most of these issuers' ratings are either on review for possible downgrade or have a negative outlook" (italics added).  According to Moody's, "One further challenge to covered bond ratings is the pressure on sovereign ratings."

• A Reuters article on the effect of sovereign risk fears noted (Feb. 5) that "the relationship between pricing of government bonds and covered bonds, highly-rated securities widely used in European bank funding, has become more closely aligned."

• In an article on rising concerns about the means by which bond issues are priced, the Financial Times notes: "There has even been a backlash from an investor body in the multibillion-euro market for covered bonds, one of the safest forms of corporate debt."

• Following a recently completed review of all of its Covered Bond criteria reports, Fitch Ratings (Feb. 4) removed the following reports from its website: (1) 'Exposure Draft: Counterparty Risk in Structured Finance Transactions' (30 March 2009); (2) Exposure Draft on Assessment of Liquidity Risks in Covered Bonds' (11 March 2009); and (3) 'Covered Bonds Swap Criteria - Exposure Draft' (02 Jun 2008).  Fitch noted that some of these reports have been replaced with more current criteria.

FRANCE

Société Générale (Feb. 3) priced a €1 billion covered bond maturing in 2022 at 54 basis points over mid-swaps.

GREECE

Moody's Investors Service announced (Feb. 4) that it is currently reviewing the potential implications of the changing situation in Greek public finances for structured finance and covered bond ratings.

ITALY

Fitch Ratings (Feb. 2) assigned Banco Popolare's first benchmark issue of €1 billion mortgage covered bonds an expected 'AAA' rating.  Fitch noted that the bonds, which have an expected maturity of up to ten years, are guaranteed by BP Covered Bond S.r.l., a special purpose company established under the Italian Obbligazioni Bancarie Garantite (OBG) Law.

NETHERLANDS

Fitch Ratings announced (Feb. 5) that ABN AMRO Bank NV's mortgage covered bonds' rating of 'AAA' will not be impacted by the legal demerger that is planned shortly.  According to the rating agency, most of the assets and liabilities owned by the Dutch State in ABN AMRO group will be spun off into a new bank, ABN AMRO II N.V.  The cover pool assets and covered bond obligations will be transferred to the new entity, and existing ABN AMRO will be renamed The Royal Bank of Scotland N.V. (RBS N.V.) after the legal demerger.

SPAIN

• Fitch Ratings (Feb. 2) placed 48 classes, relating to 43 multi-issuer cédulas hipotecarias (mortgage covered bond) transactions on Rating Watch Negative (RWN) and affirmed six classes at 'AAA' with Stable Outlook.  The rating actions follow the publication of Fitch's 'Rating Criteria for Multi-Issuer Cedulas Hipotecarias' on December 11, 2009.

• Fitch Ratings (Feb. 4) assigned Caja de Ahorros de Asturias' €100 million issue of cédulas hipotecarias (mortgage covered bonds), due in June 2013, a final 'AAA' rating.

SWEDEN

Swedish Covered Bond Corporation released its year-end report for 2009.

UNITED KINGDOM

A media release from the Council of Mortgage Lenders on the prospect of "mortgage rationing" warned (Feb. 3): "Without policy support, it may be difficult to re-establish a sustainable, long-term residential mortgage-backed securities and covered bond market in the UK on the scale needed to plug the funding gap."

Information from rating agencies in the entries above is typically adapted from those agencies' media releases.