The long-anticipated mortgage-backed securitization from U.K. building-society-turned-bank Northern Rock hit the markets in mid-September.

The GBP600 million ($970 million) deal, arranged by JP Morgan, was split into a 3.8 year tranche rated triple-A by Moody's and Standard & Poor's and a seven-year piece rated single-A. The senior tranche priced at 28 basis points over three-month Libor and the junior chunk came in at 75 over.

Banking and securitization experts suggested that the deal may herald a shift in the economics of the U.K. mortgage securitization market, as new, low-cost entrants to U.K. banking, such as the Prudential's Egg and Standard Life, have bid up the price of retail deposits.

In the past, according to Adam Applegarth, Northern Rock's executive director, the most cost-effective way of funding was either attracting cash deposits or issuing unsecured debt, but securitization is now cheaper than retail funding and not much more expensive than straight bonds. It has the added advantage of diversifying funding sources, he said.

Applegarth confirmed that the transaction will be the first in a series of similar deals from the bank, in what will be the country's first true repeat MBS program from a top-tier, prime mortgage lender. The only MBS from a comparable bank came in the form of two deals, one this year and one in 1998, from Abbey National.

Securitization bankers hope that the deal could mean that the U.K. MBS market finally sees the issuance volumes that have regularly been forecast since the first MBS deals in the late 1980s.

"The deal originators at every investment bank in the country have been trying to convince the big mortgage lenders that they should securitize their mortgages for years, but now the conditions mean that the argument is close to undeniable. If you combine this with the likelihood that the new entrants the telephone banks will also securitize, we're all hoping that it will soon be boom time," said one banker in London.

"Mind you, I've said that a least a couple of times before," he added.

Finnish mortgages in demand

Other deals that were launched in what was a busy, though not overwhelming, two weeks in the European securitization market, included another mortgage deal, this time the fourth in a series from the Housing Fund of Finland, a state-owned lender that provides cheap loans to finance the construction and refurbishment of social housing.

The E500 million ($520 million) transaction, called Fennica 4, was arranged by Paribas and Leonia.

It was chopped into two triple-A rated pieces an A1 floater paying 27 basis points over six-month Libor and an A2 fixed-rate piece paying 75 basis points over the OAT curve and a B floater, rated single-A and paying 73 basis points over. Expected maturities were November 2004 for the A1 tranche and November 2006 for the A2 and B pieces.

The ratings, from Fitch IBCA and Moody's, are linked to the sovereign because the Housing Fund is obliged to cover certain shortfalls in interest payments.

The Housing Fund was keen to access a wider pool of investors than in previous deals, which were predominantly placed in the domestic market. This was one of the reasons for the inclusion of Paribas, which placed the deal in Germany, France, the Benelux countries and Ireland.

Not too hot or too cold

German bank HypoVereinsbank was also in the market, with the second deal under its Geldilux CLO program. The E750 million transaction packaged short-term loans made to small businesses and wealthy individuals by the bank's Luxembourg subsidiary, all of which can be substituted through the life of the deal as they mature.

The deal was chopped into five tranches, rated from triple-A down to triple-B by the four major agencies. Unusually for a deal of this type, HypoVereinsbank did not seek to maximize the size of the triple-A piece, but was happy to satisfy investors craving for yield by increasing the size of the double-A chunk, which made up 67% of the total deal, according to a bank official.

Other deals included General Motors Acceptance Corp.'s first Euro-denominated securitization, a transaction called GMAC Swift 1999-1. The single-tranche, triple-A deal, worth E750 million, was jointly led by Morgan Stanley Dean Witter and Paribas, was backed by U.S. dealer floor plan auto loans and boasted a 5% coupon. The deal was widely distributed throughout Europe, bankers said.

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