Westpac seeks raising $6.64bln in Europe

The bank had to source funds by covered bonds elsewhere since they are banned in Australia.

Westpac New Zealand plans to raise up to $6.64 billion in cheaper funding from foreign investors using mortgages as security.

The bank mooted the covered bonds programme last month with the first issue in the first quarter of 2011, expected to be for 1 billion.

Bank of New Zealand was the first bank to offer covered bonds with the launch of a NZ$3 billion programme in June.

Massey University head of banking studies David Tripe said the mortgage backing of the bonds made them more attractive to investors than other forms of long term funding and would help banks meet tougher liquidity rules set by the Reserve Bank.

Westpac has not yet set a term for its initial offer, but Mr Tripe said the bank could issue 1 billion of five year bonds a year to set up a rolling programme with at least 4 billion of its funding on terms longer than a year, to help meet the higher liquidity requirements.

Covered bonds are controversial because they are secured by a pool of specific mortgages that will not be available to repay other depositors if the bank failed.

View the full story in Stuff.