Global Covered Bond News Roundup - Week Ending July 30

An Australian lawyer reports on efforts to gain approval for covered bond issuance there . . .  a U.S. dollar tap in Canada  and a Euro CB tap in France . . . plans for more covered bonds in Korea . . . a step forward for CB legislation in the U.S. . . . and more

Most items of covered bond news compiled below have not received longer treatment as individual articles in this publication, often because they relate to geographic areas outside our focus, North America.  But we also include links to some articles that we have published separately during the past week  — all organized by country.

Note:  For links to most rating agency sites, you will need to log in (free) at the site before clicking the link (sometimes available without paid subscription only for a limited period of time).  For links to Factiva and some online publications, you may need to have a subscription.

AUSTRALIA

• Dr. Mick Young, a lawyer with Henry Davis York (Sydney) and covered bonds researcher at the University of Sydney, sent this update to Covered Bond Investor™ (July 30) on prospects for covered bonds in Australia:

"The recent establishment of New Zealand's first covered bond program, and to a lesser extent the second covered bond to emerge out of Asia, has helped to re-ignite debate on covered bonds as a funding tool in Australia.  When it comes to the globally-competitive market for funding, a number of Australia's retail banks feel disadvantaged compared to their international counterparts because of the restrictions placed upon them raising capital through covered bonds. 

Mick Young"With the Reserve Bank of Australia's policy-making board next meeting on 3 August to discuss interest rates, there is a degree of speculation that retail banks may independently increase interest rates should the Reserve Bank keep the official cash rate unchanged.  The increased cost of sourcing money on the global markets has been eroding the banks' profit margins.  

"While they have so far absorbed some of these increased costs, [Australian banks] are now preparing to pass on the premiums to consumers.  Unfortunately, with a Federal election scheduled for 21 August, there will not be any constructive discussion or political engagement on the issue of widening the banks' funding sources, which could include discussions about covered bonds, until after that time.  However, whoever wins the election, any independent round of interest rate rises by the banks stemming from their costs of funding might see the issue of covered bonds soon appear on the political agenda."

Dr. Young can be reached at mick_young@hdy.com.au (+61 2 9947 6191).

• A story on the Australian Capital Markets Forum (July 29) by Australian Banking & Finance quotes the views of executives from Westpac and several other banks on the topic of covered bonds.

• Discussing Australian banks' funding needs, Simon Lewis of Suncorp Metway was quoted (July 26) as saying that the anticipated introduction of covered bonds "will help the smaller banks."

AUSTRIA

Moody's Investors Service (July 30) downgraded to Aa1 (on review for possible downgrade) the covered bonds (fundierte Bankschuldverschreibungen) issued by Kommunalkredit Austria AG under its public sector covered bond program.  Moody's stated that the downgrade was triggered by a downgrade of Kommunalkredit's senior unsecured rating.

CANADA

• Canadian Imperial Bank of Canada (CIBC) (July 28) tapped both of the U.S. dollar-denominated bonds it has issued to date, generating an additional $1 billion (July 27).  Moody's (July 28) assigned the provisional long-term rating of (P)Aaa to tranche 2 of the series CB5 covered bonds and tranche 2 of the series CB7 covered bonds anticipated to be issued, and DBRS assigned ratings of AAA.

• DBRS (July 29) finalized the rating of AAA on the Covered Bonds, Series 1 issued under the Toronto-Dominion Bank (TD) €10 billion Global Public Sector Covered Bond Program.

EUROPE (in general)

• The European Central Bank (ECB) announced (July 28) that in a change to its risk control measures in the framework for assets eligible for use as collateral in Eurosystem market operations, "all non-Jumbo covered bonds, including structured covered bonds and multi-issuer covered bonds, together with traditional (UCITS-compliant) covered bonds, will be classified in liquidity category III."

• An announcement (July 29) of second quarter 2010 financial results for Moody's Investors Service showed that "non-U.S. structured finance revenue grew 1%, driven primarily by European covered bond issuance."

FRANCE

Compagnie de Financement Foncier (CFF) priced a €450 million tap of an existing 15-year, €600 million, 2025 covered bond at 70 basis points over mid-swaps.

GREECE

• National Bank of Greece (July 30) announced that it had completed a €1.5 billion issue of residential mortgage covered bonds.

• Alpha Bank (July 27) announced that it had sold a €1 billion covered bond for liquidity purposes as part of an €8 billion program.

HUNGARY

Moody's (July 27) placed on review for possible downgrade the mortgage covered bonds OTP Jelzalogbank Zrt. (A2 placed on review for possible downgrade) and FHB Mortgage Bank Co. Plc. (A3 placed on review for possible downgrade).

PORTUGAL

Moody's (July 28) took the following rating actions with regard to covered bonds issued by several Portuguese banks: (1) confirmed at Aa1 the mortgage covered bonds issued by Banco BPI; (12) downgraded the mortgage covered bonds issued by Banco Espirito Santo, S.A., Banco Santander Totta and Caixa Geral de Depósito (CGD); and (3) the public-sector covered bonds issued by CGD.

SOUTH KOREA

• A press release from Sidley Austin (July 25) described the legal teams that assisted Korea Housing Finance Corporation (KHFC) and joint lead managers, Standard Chartered Bank and BNP Paribas with KHFC's inaugural issue of US$500 million of covered bonds in July.

• Reuters reported (July 27) that KHFC "plans to sell more than two foreign currency denominated covered bonds a year."

• An unnamed "financial watchdog" was paraphrased (July 28) to the effect that "South Korea is considering measures to increase banks' covered bond issuance in a bid to help them raise long-term funds at lower costs."

SPAIN

• Fitch Ratings (July 29) affirmed the rating of Cédulas TDA 14 Fondo de Titulizacién de Activos' €700 million Series A1 and €300 million Series A2 notes at 'AAA', respectively, with Stable Outlook. The agency stated that the notes were affirmed "despite Fitch's recent downgrade of Caja Madrid Cédulas Hipotecarias [mortgage covered bonds], to which Cédulas TDA 14 is heavily exposed."

• Fitch Ratings (July 28) commented that the transfer of Caja de Ahorros y Monte de Piedad de Cordoba's (Cajasur) assets and liabilities to Bilbao Bizcaia Kutxa (BBK) will have a positive effect on the multi-issuer cedulas hipotecarias transactions exposed to Cajasur and a neutral impact on the transactions exposed to BBK.

• "Investors are still extremely negative on Spanish lenders," Bloomberg quoted Florian Hillenbrand (UniCredit) as saying, in a story on the record-high spread offered by Bankinter SA for a covered bond issue (July 26).

• An analysis from Danske Bank observed (July 26): "Even though the [European] stress test is close to a non-event in the covered bond market, we actually find the test results slightly positive for Spanish Cédulas compared to German Pfandbriefe."

• The Wall Street Journal (July 26) cited the record spread on the €2 billion covered bond recently priced by Banco Bilbao Vizcaya Argentaria (BBVA) in an article on European banks' stiff funding challenge in coming months.

• Banco Popular is said to be considering a covered bond issue for later in 2010.

UNITED KINGDOM

• A consultation paper released by UK Business Secretary Vince Cable, as described by Bloomberg (July 26), indicated that "the government was interested in feedback on how it might be able to help develop securitization markets such as the U.S. Term Asset-Backed Securities Loan Facility and also covered-bond guarantee programs to support lending."

• Yorkshire Building Society announced (July 26) that "the holders of the Series 1 Covered Bonds . . . Series 3 Covered Bonds . . . [and] Series 4 Covered Bonds . . . have each duly passed an extraordinary resolution approving the removal of Standard & Poor's Rating Services, a division of the McGraw-Hill Companies Inc. (S&P) from the Issuer's covered bond programme . . . as more particularly set out in the Consent Solicitation Memorandum dated 28 June 2010."

UNITED STATES

• The latest version of comprehensive U.S. covered bond legislation, H.R. 5823, was reported out of a markup session by a voice vote of the House Financial Services Committee (HFSC) (July 28).  (Another report on the vote may be found here.)

• U.S. Rep. Scott Garrett (R-NJ), the main sponsor of H.R. 5823, discussed his view of amendments to the legislation in an interview published July 30.  (More on his news may be found here.)

• Jacob Gaffney at Housing Wire (July 29) reported on concerns that covered bonds in the U.S. may turn out not to be as cost-effective as previously hoped.

• American Banker (July 27) explored the conflict "brewing between regulators and Congress over how to develop a covered bond market."

• Prominent organizations that recently sent letters to officials or made public announcements in support of covered bond legislation (H.R. 5823) included the National Association of REALTORS®, CRE Finance Council and the Securities Industry, Financial Markets Association (SIFMA) and American Securitization Forum (ASF).

• In an article on U.S. housing policy, Atlantic asked (July 29): "So what happens if the government's widespread support of mortgage liquidity ends? Then, the U.S. would be like virtually all other countries -- they don't have GSEs [Government Sponsored Enterprises] like Fannie [Mae] and Freddie [Mac]. They rely on other ways to make sure that banks are funding mortgages, like well-developed covered bond markets."

Information from rating agencies in the entries above is typically adapted from those agencies' media releases.  Rating news items should not be relied upon as a substitute for the full text of rating action announcements.