Covered Bond Investor™ LLC today announced its official launch of the first-ever online publication primarily focused on news, analysis, and resources related to the nascent U.S. covered bond market.
The publication—Covered Bond Investor™ (www.coveredbondinvestor.com)—is freely accessible without charge.
“Covered bonds are sorely needed in the U.S. to help restore investor confidence and access scarce capital funding,” said Covered Bond Investor™ co-founder Mercy Jiménez. “Unlike asset-backed securities, which contributed to our current economic crisis, covered bonds cannot be sliced and diced and played around with. In a sense, they’re rather boring-and that’s great.”
The covered bond model of financing differs from securitization in at least two important ways, Jiménez said. First, lenders (e.g. a bank) stay “on the hook” to pay bondholders, so a lender has more incentive to make “good” loans. Second, bondholders are additionally protected by a dynamic “cover pool” of loans and other assets that can be replenished if the original loans deteriorate for any reason.
Since going online in a beta test phase, the Covered Bond Investor™ website has quietly begun attracting readers (many through Google searches or a Wikipedia article on covered bonds). In the past few months, visitors have accessed the site from all across the U.S.—plus 39 other countries from Peru to Japan (principally the United Kingdom, Canada, France and Germany).
The site is designed to help visitors learn the basics about covered bonds as well as stay abreast of new developments. Available “resource” items include a recent article on the topic by the PricewaterhouseCoopers accounting firm and an exclusive series of commentaries by attorney Jerry Marlatt (who helped engineer the first U.S. covered bond issue).
Although Europeans have relied on covered bonds as a secure investment for centuries, many Americans first heard of them in early 2008, when U.S. Treasury Secretary Henry Paulson publicized their potential to help fund the struggling home mortgage market. That push faltered as economic conditions plunged and the biggest U.S. banks came under severe strain.
Today, Jiménez believes the best potential for U.S. covered bonds is in funding arenas other than the government-subsidized home mortgage market-and with “quality” lenders whose names are not so well known as the banking giants.
“There are quality assets on the balance sheets of quality lenders that are not being reached by federal bailout programs,” Jimenez said. “Many institutions currently are unable to access the equity markets to raise capital, and unsecured debt is requiring wide spreads to attract investors. For those segments, the covered bond structure presents a promising alternative.”
Jimenez’ perspective comes from two decades as an executive in financial services, both in the U.S. and internationally. After earning her MBA from the Harvard Business School, she worked for Citigroup, JPMorgan Chase, and Fannie Mae.
Her appreciation for lesser-known financial institutions came while heading a national business center with nearly 2,000 lender relationships across the country-large regionals as well smaller banks and credit unions.
“I was struck by the nobility of these institutions’ conservative underwriting and general disdain for exotic loan products,” Jiménez said. “A short while ago, the high flyers might have scoffed at their careful decisions as ‘missed opportunities’—but now the only missed opportunity is if we as a nation do not support and reward their good behavior. Traditional, quality lenders are our nation’s best hope.”
Jiménez and the other co-founder of Covered Bond Investor™—lawyer-journalist Spencer Punnett—launched the online publication in part to make information about covered bonds more readily available to such institutions. Although they acknowledge that not much is visibly happening with covered bonds in the U.S. right now, they are confident that this will change with time.
“Every quality on-balance sheet lender should explore the possibility of covered bonds as an alternative to funding arrangements that have become problematic in the current environment,” Jiménez said.
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Covered Bond Investor™ is the only online publication primarily focused on news, analysis, and resources related to the nascent North American covered bond market. It seeks to cultivate the growth of covered bonds by providing free access to expertise that will allow more participants to explore this alternative source of capital funding.
Release Date: April 29, 2009