The Pfandbrief 2011 | 2012

Roundtable Pfandbrief Banks
tion among the rating agencies would seem necessary. However, it is likely to take many years
before a new agency is established, as it would first have to earn investors’ confidence and be
politically desired.
HB: For Pfandbrief issuers wishing to place Pfandbriefe, there is no alternative to a rating.
Banks which issue Pfandbriefe internationally and on a regular basis are even expected to provide
two ratings. This makes it difficult to arrive at the necessary trade-off.
BW: It is an unfortunate fact that covered bond ratings today depend primarily on the amount
of overcollateralization, and that the quality of the legal framework which regulates covered
bonds plays only a secondary role. After Fitch, in early 2009, downgraded the Pfandbrief ratings
of Pfandbrief banks specializing in commercial property finance to “watch negative”,
we consciously opted for an AA+ rating. But since investors face increasingly more – not less
– regulatory requirements that are based on external ratings, issuers will have to continue having
their Pfandbriefe rated by one of the agencies.
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6.
Investors suspect that a new bubble will result from real estate finance providers
changing their business strategy to make commercial real estate their new core
business. How will the trade-off between secured income and greater risk as well as
stronger pressure on margins be reached?
TS: For us, international commercial property finance is not a new core business field, but one
we have engaged in for 20 years. Wide regional diversification substantially reduces dependence
on individual real estate cycles and allows Pfandbrief investors to invest in a professionally
managed International property portfolio.
BW: For many years now, we have regarded commercial property finance – alongside credit
for housing associations and cooperatives to finance multi-family dwellings – as our core
business. In the past years, well over 90% of our new lending activities have at all times been
categorized in the risk classes 1-7 of the DSGV master scale. Put simply, this is equivalent to
the school grades “very good” and “good”. A conservative risk profile will remain our leitmotif
in the future.
7.
Exactly what constitutes the “right” mortgage lending value was the subject of
debate, particularly before the financial market crisis. In many European countries,
mortgage lending limits sometimes clearly above 60% are permitted. What is more,
these are often based on the market value rather than the mortgage lending value,
the measure commonly used in Germany. Can raising the mortgage lending limit be
justified? How high should it be for commercial loans and private mortgages?
RG: Thanks not least to the conservative valuation approach applied, the Pfandbrief is the
highest-quality product in the covered bond world. Given the proven low risk provisioning in
the housing finance business, a higher mortgage lending value would be justifiable; investors
would still recognize the high quality of the Pfandbrief.