The Pfandbrief 2011 | 2012

Roundtable Pfandbrief Banks
2.
The volume of Pfandbriefe has been on the decline for years. How long will this
development continue? What impact will it have on investor behavior?
Tanja Stephan (TS): It is true that the volume of Pfandbriefe has fallen continuously since the
year 2000. As a matter of fact, however, this consolidation has taken place only in the case of
the Public Pfandbrief. Mortgage Pfandbriefe present a different picture: their volume has consistently
been in excess of €220 billion since 1998. Before the financial market crisis, Public
Pfandbriefe were long considered by investors to be a surrogate for government bonds and
were marketed as such. All this has changed. Investors are placing greater emphasis on the
quality and diversification of the cover pools and a balanced management of the cover assets.
Parallel to this development, a number of issuers have made portfolio restructurings and
reductions; this, overall, will lead to a further decrease in public sector cover pools and, consequently,
in Public Pfandbrief issues.
HB: Given the large volume of maturities in formerly government-guaranteed loans to savings
banks and Landesbanken in the coming years, the total volume of Pfandbriefe outstanding is
likely to decline further until the end of 2015.
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3.
The sovereign debt crisis has brought Public Pfandbrief issuers back into investors’
field of vision. A particularly critical view is held of exposure to peripheral states.
Are foreign cover assets going to disappear from Public Pfandbrief cover pools?
RG: First of all, it needs to be said that investments were made in bonds of the countries
affected – all of which are members of the Eurozone – for reasons of portfolio diversification.
The volumes are correspondingly small in terms of total holdings. The extent to which foreign
cover assets will disappear from public sector cover pools depends on the orientation of each
Pfandbrief bank’s business model.
TS: Every cover pool is a portfolio which has to be actively managed, in particular, from the
point of view of risk, return and liquidity. This makes diversification of credit qualities and
asset classes indispensible. I don’t think there is anything to be gained by restricting by region
the assets that are to qualify as cover; the opposite is probably the case.
4.
Some Pfandbrief issuers are doing away with small-scale property finance. At the
same time, commercial mortgages are subject to greater price fluctuations. What are
the implications for the cover pools?
RG: That statement is true of some, but not all, Pfandbrief issuers. Some have always considered
private residential property finance as their core business. Particularly in the financial
market crisis, this core business and the granular portfolio it entails has proven to be very
sound and sustainable.