BMO Web Page
BNS Web Page
CCDQ Web Page
CIBC Web Page
NBC Web Page
RBC Web Page
TD Web Page
LCR in Canada The Office of the Superintendent of Financial Institutions (OSFI) in Canada issued guidelines on May 30 for liquidity adequacy for Canadian Banks. See, Liquidity Adequacy Requirements (LAR) Guideline. The publication addresses the implementation in Canada of both the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) under the Basel III capital requirements. The effective date of the requirements is January 1, 2015.
Under the OSFI guidance, covered bonds will qualify as high quality liquidity assets (HQLA) under Level 2A. To be eligible as HQLA, the covered bonds must be issued by another bank or institution, rated at least AA-, "subject by law to public supervision" and the proceeds of issuing the bonds must be "invested in conformity with the law in assets which, the whole period of the validity of the bonds, are capable of covering the claims attached to the bonds . . .." Legacy Canadian covered bonds issued prior to the adoption of covered bonds legislation may be included if they meet the other requirements.
Eligibility of covered bonds as Level 2A HQLA is not restricted to covered bonds issued by Canadian banks. Covered bonds from other jurisdictions that have a statutory regime for issuance of covered bonds will be eligible if they meet the rating and liquidity requirements under the OSFI guidance.
Housing Bubble? There have been persistent reports out of Canada of a hot housing market and suggestions that there is a real estate bubble. Last year the government took a number of steps related to insured mortgage loans to cool the market, including reducing debt service ratios, reducing the maximum amortization period and limiting loans to C$1 million. This does not seem to have had a significant effect. Last fall Bloomberg reported the sale of a C$39 million condo in Vancouver. Now the Financial Times reports in its January 17 edition that housing prices are up 37% in Canada since 2008. (See On Short Notice, FT, p.8, January 17, 2014.) The article reports an IMF concern about the scale of the government's role in the mortgage market. Through CMHC, the government has insured C$560 billion of mortgage loans. At the same time, the Canadian mortgage market is very different from the U.S. mortgage market. Mortgage loans are full recourse to the borrower, unlike many states in the U.S. where recourse is limited to the property securing the loan and other assets of the borrower are protected. There is no tax relief in Canada for mortgage loans payments. And Canada has not seen the boom in repackaging mortgage loans as securities that was seen in the U.S. Nevertheless, there are some troubling parallels to the U.S. situation, so Canadian housing prices will bear watching. Canada's banks came out of the financial crisis in excellent condition and today may be viewed as the best banks in the world. A housing bubble would damage that status.
In its first covered bond of 2014, RBC came out with a 5 year EUR 1.000B 0.750% offering on June 12.
The second half of 2013 was a busy period for the RBC covered bond program. RBC was registered with the CMHC, the Canadian regulator, in early July, promptly marketed a USD1.750 B 1.125% due 2016 on July 16, listed a prospectus on the UKLA on July 25, and marketed a EUR2.0 B 1.625% due 2020 on July 25, and a A$1.250 B 3 month AUD BBSW + 0.53% due 2016 on August 7. RBC was back in the market in October with a USD2.0 B 2.000% due 2018 and a EUR2.0 B 1.250% due 2018. A very busy few months, especially considering that August was a blackout month for the bank. RBC's registration statement was approved by the SEC on July 30, 2012.
CIBC issued on the heels of RBC in July with a EUR1.0 B 1.250% due 2018 offering that was very well received in Europe. CIBC followed that on October 22 with a 39 month A$500M offering at 3 month Bank Bill Rate plus 0.52.
On September 4, 2014, BNS priced its inaugural SEC registered covered bond, the second offering for its legislative program, a $1.500B 2.125% due 2019. On March 26, 2014, BNS followed NBC and CCDQ to Europe and issued its first legislative covered bond. The offering was EUR1.0 B 1.000% due 2019. BNS received approval from the SEC for a new registration statement in May 2013 and received its approval from CMHC for its program in late July 2013. However, the bank's prospectus was not listed on the UKLA until January 2014. BNS has not disclosed any reason for the long delay after CMHC approval of the program.
BMO priced a EUR1.0 B five year legislative covered bond on April 29, 2014, its first EUR offering since 2008. Like other Canadian banks, BMO will have a blackout month in May for release of its second quarter numbers. Previously, the BMO covered bond prospectus was listed on the UKLA on April 22, 2014. BMO received approval for its legislative covered bond program from CMHC on April 11, 2014. All of the legacy Canadian covered bond issuers other than Toronto-Dominion Bank are now registered with CMHC. BMO received its approval from the SEC in August 2013 for its new registration statement.
For its first offering of 2014, NBC priced a EUR1.0 B 1.500% due 2021 on March 18 at mid-swaps +22. NBC completed its first legislative covered bond in December 2013 in a EUR1.0 B 1.250% due 2018 offering that was also its first offering of covered bonds in Europe. NBC received its CMHC approval in November 2013. NBC listed its prospectus with the UKLA on November 7, 2013. Under its prior program, NBC had made two offerings in the US.
On July 21, TD priced its inaugural legislative covered bond, a 5 year EUR 1.750B 0.625% offering that reportedly was very well received by the market. Earlier, on July 14, 2014, TD listed a prospectus with the UKLA. On June 25, the TD Bank covered bond program was registered with CMHC, becoming the last of the legacy covered bond issuers to register with the new Canadian covered bond regulator. To date, there have been no public filings with the SEC, but now that the program has been registered and a prospectus filed with the UKLA, those filings are probably not far behind, since TD has SEC registered senior debt.
On March 4, 2014, DesJardin priced a EUR1.0 B 1.125% due 2019 offering of five year covered bonds at 1.125% with a spread of 15 bp to mid-swaps.  On January 29, 2014, DesJardin received approval from CMHC for its covered bond program. See the CMHC program listing here.