Treasury: Firms to roll out covered bonds

Brokerage firms are likely to be issuing new covered bonds to finance mortgages within the next few months, a Treasury official said today.
“This is a tough environment to launch a new financial product,” said Neel Kashkari, assistant secretary of the Department of the Treasury, but “never has the market needed this financial product as much as we need it now.”
He spoke at the American Enterprise Institute for Public Policy Research in Washington.
Banc of America Securities, a unit of Bank of America Corp. of Charlotte, N.C.; Citigroup Inc. of New York; JPMorgan Chase & Co. of New York; and Wells Fargo & Co. of San Francisco are among the brokerage firms that are ready to begin issuing the bonds, Mr. Kashkari said.
In addition, the Securities Industry and Financial Markets Association of New York and Washington has created a U.S. Covered Bonds Traders Committee to encourage the market’s growth in the United States.
The Treasury Department is promoting covered bonds as one alternative to the mortgage financing that has been provided by Fannie Mae of Washington and Freddie Mac of McLean, Va., which were put into conservatorship by the government this month as a result of the subprime-loan crisis.
Those two entities fund more than half of the U.S. $11 trillion residential-mortgage market.
Covered bonds are debt securities backed by cash flows from mortgages or public-sector loans.
They are similar to asset-backed securities, but covered bonds remain on the issuer’s balance sheet.
Mr. Kashkari warned that there is no “silver bullet” that will easily solve the nation’s mortgage-funding crisis.
“There is no financial product, short of government Treasury securities, that will be immune to capital market stresses,” he said.