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B&B underlines credit quality with covered bond issue

Bradford & Bingley’s issuance of a £500m two-year covered bond through ABN Amro last week is a positive sign of its credit quality, say brokers.

Covered bonds are securities backed by mortgages or public sector loans that remain on the issuer’s balance sheet. Both HBOS and Nationwide have recently used covered bonds.

This comes after B&B saw its share price fall by 15 per cent two weeks ago during the Northern Rock debacle. It is understood that the FSA was looking at the issue of funding across the market.

John Charcol senior technical manager Ray Boulger says: “This says very good things about B&B’s credit quality. It tends to be the bigger players that do it, so you certainly expect HBOS and Nationwide to be able to do it but I do not think it is a market open to everyone.”

Nationwide non-retail executive director Matthew Wyles adds: “Covered bonds only really work if you have a strong balance sheet so only a limited number of organisations can do it. They are quite a cheap way of funding.”

Wyles believes none of the new entrants would be able to issue covered bonds as they are the preserve of big balance-sheet lenders.

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