Nov. 11 (Bloomberg) -- Fortis Bank (Nederland) NV’s 100 billion-euro ($150 billion) covered-bond program may open a “highway” for mortgage debt sales in Europe when it seeks buyers for assets designed to back central bank loans, according to a Deutsche Bank AG analyst.

The bonds pool residential mortgage-backed securities that Fortis issued and kept, which are eligible as collateral for European Central Bank loans, the Utrecht-based lender said on its Web site. Banks retained about 1.2 trillion euros of asset- backed securities since July 2007, UniCredit SpA data show, so they could borrow from the ECB during the credit crisis.

“If other issuers follow Fortis, this would create a tremendous supply potential for the European covered-bond market,” said Bernd Volk, head of covered bond research at Frankfurt-based Deutsche Bank. “This could be a new highway to channel retained securitizations to investors.”

The covered bonds package securities issued under the Dolphin Master Trust, a program set up by Fortis to finance home loans. The first notes to be issued under the program will mature in 2016 and have the top credit ratings from Moody’s Investors Service.

Fortis spokesman Fred Dellemijn in Utrecht confirmed the bank set up the program, without providing details on the timing of the first issue.

Long-Term Funding

Covered bonds are typically backed by mortgages or public- sector loans. The collateral backing the debt remains with the borrower, who also guarantees the bonds. They date back to the 18th century, when they were used in Prussia to finance agriculture, according to the European Covered Bond Fact Book.

French mortgage lenders CIF Euromortgage and Credit Foncier de France have also issued covered bonds using residential mortgage bonds as collateral, according to Deutsche Bank data.

By selling bonds to investors, banks can raise longer-term funding than they can get from the ECB, which provides loans from one week to a year. Covered bonds offer competitive funding costs, with the yield gap versus government debt tightening to 82 basis points, almost half the spread at the start of the year, according to indexes compiled by Merrill Lynch & Co. A basis point is 0.01 percentage point.

“Banks are seeking all available ways to cut their reliance on the ECB and these covered bonds offer a very competitive alternative,” said Ivan Comerma, who helps manage 3.7 billion euros of assets as head of capital markets at Banc Internacional-Banca Mora in Andorra. “This is a way for banks to reduce their stocks of RMBS retained in the last two years,” said Comerma, who is considering buying Fortis’s bonds.

Sales of covered bonds are expected to increase to 168 billion euros in 2010 from 120 billion this year, according to Societe Generale SA estimates. A record 179 billion euros of the notes were issued in 2006, SocGen data show.

Fortis’s Dutch banking and insurance units were bought by the Netherlands last year after the company ran out of short- term funding as customers withdrew deposits and investors lost confidence.

To contact the reporter on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net

Last Updated: November 11, 2009 09:40 EST