HSBC has taken an initial step towards potential covered bond issuance out of Canada with the incorporation of a new covered bond company, and is understood to be going through the regulatory process to set up a Canadian programme.

HSBC Holdings’ annual report, published today (Tuesday), lists a new subsidiary, HSBC Canadian Covered Bond (Legislative) GP Inc. The company was not listed in HSBC Holdings’ previous annual report, and according to Canadian business directories it was incorporated on 5 December.

The CBR understands that an application from HSBC to set up a Canadian covered bond programme is going through the regulatory approval process and that the finalisation of the programme is not imminent.

HSBC is not yet listed on the Canadian Mortgage & Housing Corporation (CMHC) Canadian Covered Bonds Registry.

As of the end of 2017, the UK-headquartered group had US$4.57bn (EUR3.68bn) of covered bonds outstanding. Its last UK covered bond matured last year and all the group’s remaining covered bonds were issued out of France by HSBC SFH. HSBC SFH’s last benchmark issue came in March 2015.

Caps established by OSFI/AMF limit Canadian banks’ covered bond issuance at 4% of their total assets. HSBC Bank Canada could therefore issue some C$3.86bn of covered bonds, based on the figures released today, noted Maureen Schuller, head of financials research at ING. As of 31 December, HSBC had a US$18.639bn (EUR15.019bn, C$23.399bn) book of first lien residential mortgages in Canada, up from US$15.220bn as of 31 December 2016. HSBC Bank Canada’s total assets as of 31 December were C$96.4bn (EUR61.9bn), an increase of C$1.7bn, or 1.8%, from 31 December 2016.

Announcing its results yesterday (Monday), HSBC Bank Canada said the increase in its assets is partly due to growth in loans and advances to customers of C$3.4bn compared with 2016, driven partly by growth in its residential mortgages portfolio.

“Canada remains a priority growth market for HSBC, attracting significant investments to drive growth and improve efficiency, and for risk and compliance initiatives,” said Sandra Stuart, president and CEO of HSBC Bank Canada. “This has clearly had an impact.

“There is good momentum in all of our business lines and revenues improved in both of the last two quarters.”