Why the sun hasn’t set on RMBS
The introduction of a covered bond law in the UK is meant to sound the death-knell of RMBS. But the traditional financing vehicle of UK mortgages still offers greater leverage, diversification and liquidity. That’s why banks such as HSBC are considering setting up both covered bond programmes and new RMBS master trusts. Louise Bowman reports.
THE FUTURE LOOKS bright for covered bond issuance in the UK. “The market will develop to become one of the most important term financing instruments for UK banks,” says Dominic Swan, managing director at HSBC, one of a group of UK houses now actively considering the launch of a structured covered bond programme. If this is the case, the UK Financial Services Authority’s decision in February to embrace full Ucits compliance for UK covered bonds will only accelerate this process [see UK banks gain parity, Euromoney March 2006].
The FSA decision was made because “expectations are that the regime will facilitate innovation and promote competition. It is also consistent with the findings of the Miles Report [on the future of the UK mortgage market],” according to the regulator. The long-term impact of this decision could be far-reaching, given the UK’s longstanding love affair with funding mortgage origination in the securitization market.
Total residential mortgage-backed securitization (RMBS) issuance in Europe stood at the equivalent of about $175.2 billion in 2005 (boosted by some huge regulatory capital trades that hit the market in early December).