IN THE first deal of its kind since the credit crunch paralysed the financial markets, HBOS last night revealed it had sold £500 million worth of bonds backed by home loans.
Britain's biggest mortgage lender said that the move was the first for HBOS, owner of the Halifax, since July 2007. It marks a gradual but notable thaw in the market for mortgage-backed securities which froze with the onset of the credit crunch last
autumn.
HBOS announced the move in a statement last night. It said it had completed a £500m "placed residential mortgage-backed securitisation" (RMBS) from its Permanent Master trust programme.
The deal, it added, was "sparked by enquiries received from a number of investors".
HBOS said it had created a "placed deal" to a small group of investors: 50 per cent banks and 50 per cent insurance companies – both UK and international institutions.
And the loans in the securitisation were "prime UK residential mortgages, all originated by HBOS under its Halifax brand".
The AAA-rated bonds have an average duration of 3.64 years and will pay 85 basis points more than benchmark borrowing costs.
Last night the move was seen as the first sign that Europe's mortgage-backed bond market, which seized up after a crisis in the US subprime housing market, was showing signs of recovery.
In the wake of the onset of the global credit crunch last August, investors shunned complex securities even where underlying credit quality remained good.
Lenders such as banks, conduits and structured investment vehicles (SIVs) retreated after facing their own funding problems.
Alex Potter, banking analyst at Collins Stewart, commented: "It's the first deal in this area for quite a while.
"To be honest, it is tiny compared to the sorts of deals that were being done beforehand. But it is a small bit of good news."
In its financial stability report earlier this month, the Bank of England said an important factor contributing to the contraction in mortgage credit supply had been the effective closure of the UK residential mortgage-backed securities market.
The value of the market fell from a peak £42 billion in the final quarter of 2006 to just £400m in the first quarter of this year.
The report noted that "overly high risk premiums and the closure of key funding markets for banks restrict their ability to supply credit to households and corporates."
It added that an improvement in the functioning of securitisation markets "should begin to ease some of the funding pressures in the banking sector."
Lead managers on the sale are HBOS, Citi and UBS.
The full article contains 440 words and appears in The Scotsman newspaper.
