The Pfandbrief 2011 | 2012
The Pfandbrief 2011 | 2012
The Pfandbrief 2011 | 2012
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Regulation of rating agencies: Time for new priorities?<br />
Future target rating to remain AAA/Aaa<br />
Michael Schulz, NordLB<br />
78<br />
A few years ago, there was an unspoken rule that “Covered bonds are rated AAA/Aaa and<br />
therefore are held in unqualified high regard by investors”. However, in view of current ratings<br />
for public and mortgage covered bonds, this rule no longer applies to all jurisdictions.<br />
While ratings of German <strong>Pfandbrief</strong>e by the three major rating agencies, Fitch, Moody’s and<br />
Standard & Poor’s, have not changed substantially since June 2010, ratings for covered bonds<br />
from Portugal, Ireland and Spain have dropped sharply in some cases over the last 12 months.<br />
Whereas outstanding benchmark issues of Irish banks (with few exceptions) still stood at AAA/<br />
Aaa at the beginning of June 2010, only two programmes still hold the top rating, each from<br />
a different rating agency. <strong>The</strong> ratings trend in Portugal has been far more dramatic. A year<br />
ago, all covered bond programmes (benchmark issues) still had a AAA/Aaa rating from at least<br />
one agency. Not a single Portuguese bank could still make that claim at the beginning of June<br />
<strong>2011</strong>. In the interim, ratings for Obrigações Hipotecárias and Obrigações Sector Público have<br />
been downgraded by up to eight notches, in some cases.<br />
However, it is no coincidence that covered bond ratings in Portugal, Ireland and Spain are<br />
facing more and more pressure. Now that Standard & Poor’s also links issuer ratings and bond<br />
ratings, ratings of covered bonds by all three of the major agencies depend indirectly on the<br />
issuing bank’s rating. Thus, if the bank is downgraded, triggered for example by a deteriora-<br />
Public Sector EUR Benchmark Covered Bonds<br />
(As at 30 June <strong>2011</strong>)<br />
Mortgage EUR Benchmark Covered Bonds<br />
(As at 30 June <strong>2011</strong>)<br />
30<br />
70<br />
25<br />
60<br />
Number of ratings<br />
20<br />
15<br />
10<br />
Number of ratings<br />
50<br />
40<br />
30<br />
20<br />
5<br />
0<br />
AAA/Aaa<br />
AA+/Aa1<br />
AA/Aa2<br />
AA-/Aa3<br />
A+/A1<br />
A/A2<br />
A-/A3<br />
BBB+/Baa1<br />
BBB/Baa2<br />
BBB/Baa3<br />
BB+/Ba1<br />
BB/Ba2<br />
BB-/Ba3<br />
AAA/Aaa<br />
AA+/Aa1<br />
AA/Aa2<br />
AA-/Aa3<br />
A+/A1<br />
A/A2<br />
A-/A3<br />
BBB+/Baa1<br />
BBB/Baa2<br />
BBB/Baa3<br />
BB+/Ba1<br />
BB/Ba2<br />
BB-/Ba3<br />
10<br />
0<br />
Fitch Moody's SAP Fitch Moody's SAP<br />
Source: NORD/LB Fixed Income Research
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