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Capital Markets

WaMu for covered bonds

(March 2006) Washington Mutual is conducting a feasibility study on the prospects of issuing a covered bond. The potential market impact is huge.

Debt round-up: WaMu ponders a covered bond

Washington Mutual is conducting a feasibility study on a covered bond. If it goes ahead, it would be the first US issuer to use this funding tool and might spur substantial interest in the already burgeoning sector. Senior bankers say that ABN AMRO and Barclays Capital are working on the study. Both banks refused to comment to Euromoney.

What is the rationale for a US issuer doing a covered bond? A lot of bankers assume that agency funding in the US – which is a very aggressive source of finance – remains the more attractive option.

But for WaMu, a large provider of home loans in the US, covered bonds could provide a welcome alternative source of liquidity. The prospect is of opening up of a new and deep investor base different to the one it has in the domestic market.

US banks are more domestically focused than financial institutions in Europe when it comes to their funding sources. Well-rated US banks, generally, have never looked to Europe for senior unsecured or secured financing.

US banks have also been happier running an asset and liability mismatch on their balance sheets.

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