Ratings Assigned To Deutsche Bank SAE's ... - Standard & Poor's

Ratings Assigned To Deutsche Bank SAE's Spanish 

Mortgage Covered Bonds 

Primary Credit Analyst: 

Ana Galdo, Madrid (34) 91-389-6947; ana_galdo@standardandpoors.com 

Secondary Contact: 

Alvaro Astarloa, Madrid (34) 91-389-6964; alvaro_astarloa@standardandpoors.com 

OVERVIEW 

• We have assigned 'AA+/Negative' ratings to Deutsche Bank SAE's mortgage 

covered bonds. 

• Our ratings on Deutsche Bank SAE's covered bonds incorporate the maximum 

possible uplift under our covered bond criteria, capped by the sovereign 

rating on Spain in line with our June 2011 criteria. The ratings on the 

covered bonds are on negative outlook, to reflect the negative outlook of 

the sovereign rating on Spain. 

MADRID (Standard & Poor's) June 29, 2012--Standard & Poor's Ratings Services 

today assigned its 'AA+' long-term credit rating to Deutsche Bank, S.A.E.'s 

mortgage covered bonds ("cédulas hipotecarias"). The ratings on the covered 

bonds are on negative outlook (see list below). 

Deutsche Bank SAE is one of the leading international banks with a presence in 

the Spanish market. It offers financial services through two business areas: 

Private Clients & Asset Management (PCAM), and Corporate & Investment Banking. 

With approximately 2,700 employees, it provides service to over 600,000 

customers through 253 offices in 17 Spanish regions. 

These covered bonds are senior secured debt issued by Deutsche Bank SAE. 

According to our criteria, we view the covered bond ratings as issue ratings 

that are linked to that on the issuer (see "Revised Methodology And 

Assumptions For Assessing Asset-Liability Mismatch Risk In Covered Bonds," 

published on Dec. 16, 2009). 

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 29, 2012 1 

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Ratings Assigned To Deutsche Bank SAE's Spanish Mortgage Covered Bonds 

RATINGS ASSIGNED TO DEUTSCHE BANK SAE'S MORTGAGE COVERED BONDS 

The mortgage covered bonds that we have rated today, which have been issued by 

Deutsche Bank SAE, are "cédulas hipotecarias". 

In assigning today's ratings, we have applied our 2009 covered bond criteria 

(see "Revised Methodology And Assumptions For Assessing Asset-Liability 

Mismatch Risk In Covered Bonds," published on Dec. 16, 2009). 

Under our criteria for rating covered bonds, we evaluate the maximum potential 

rating on a covered bond program as the bank's obligor's creditworthiness plus 

the maximum number of notches of ratings uplift. The maximum number of notches 

of uplift results from our assessment and classification of the program's 

asset-liability mismatch (ALMM) risk and the program categorization. 

When determining the program categorization, we consider primarily our view of 

the jurisdiction of a program and its ability to access external financing or 

monetize the cover pool. Finally, we assign the covered bonds to one of three 

distinct categories. Under our criteria, to achieve the maximum potential 

number of notches of uplift, the available credit enhancement needs to be 

commensurate with the target credit enhancement. 

Following our analysis, and given our view of the Spanish legal framework, we 

have categorized Deutsche Bank SAE's mortgage covered bonds in category "1" 

and determined a "low" ALMM classification. 

Based on our criteria and the application of our credit and cash flow stresses 

using the latest information we received from the issuer, we have assessed 

that the overcollateralization available to support Deutsche Bank SAE's 

cédulas hipotecarias can sustain the maximum potential uplift above the 

long-term obligor's creditworthiness on Deutsche Bank SAE. 

Therefore, we have assigned our 'AA+' long-term rating to Deutsche Bank SAE's 

mortgage covered bond program and all related series, which reflects this 

maximum ratings uplift capped by the sovereign rating on Spain, in line with 

our "Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And 

Assumptions," published on June 14, 2011. 

At the same time, we have placed on negative outlook the assigned 'AA+' 

ratings on these covered bonds. The negative outlook reflects the outlook for 

the rating on the Kingdom of Spain (BBB+/Negative/A-2). 

Our ratings on Deutsche Bank SAE's mortgage covered bonds follow our analysis 

of the issuer's asset and cash flow information as of March 31, 2012. 

We have analyzed the credit risk in stressed scenarios using structured 

finance techniques--i.e., foreclosure frequency and loss severity 

assumptions--which we typically apply for Spanish mortgage assets (see " 

Methodology And Assumptions: Update To The Criteria For Rating Spanish 


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Residential Mortgage-Backed Securities," published on Jan. 6, 2009). 

As per our "Revised Methodology And Assumptions For Assessing Asset-Liability 

Mismatch Risk In Covered Bonds," published on Dec. 16, 2009, we evaluate cash 

flows generated by the cover pool, and the cash flow required to service 

outstanding covered bonds under severe economic conditions. This evaluation 

aims to determine whether the assets in the cover pool are sufficient to meet 

the payments on the covered bonds in a timely manner. 

Our cash flow analysis assesses the cover pool's performance by considering: 

• Credit risk (as described in the paragraphs below); 

• Interest rate and currency risk; 

• ALMM risk resulting from cash flow mismatches between assets and 

liabilities in terms of maturity, and from market value mismatches if the 

program has to liquidate assets; 

• Prepayment risk and servicing costs; and 

• An appropriate stress-testing of these risks, using our cash flow model 

(Imake). 

We assess the cover pool's credit risk as per our "Criteria for Rating Spanish 

Residential Mortgage-Backed Securities," published on March 1, 2002, " 

Methodology And Assumptions: Update To The Criteria For Rating Spanish 

Residential Mortgage-Backed Securities," published on Jan. 6, 2009, "Principles 

Of Credit Ratings," published on Feb. 16, 2011, and "Expanding European 

Covered Bond Universe Puts Spotlight on Key Analytics," published on July 16, 

2004. 

In our modeling, we use cash flow assumptions as per our general cash flow 

criteria ("Cash Flow Criteria for European RMBS Transactions," published on 

Nov. 20, 2003, and "Methodology And Assumptions: Update To The Cash Flow 

Criteria For European RMBS Transactions," published on Jan. 6, 2009), because 

we consider these to be appropriate to apply to covered bonds, due to the 

similar cash flow risk nature of residential mortgage-backed securities (RMBS) 

and covered bonds. 

The ratings on the covered bonds reflect our expectation of timely interest 

payment and ultimate principal repayment by the final maturity date of the 

covered bonds. 

As of March 31, 2012, the key characteristics of the combined residential 

mortgage books of the three entities were: 

KEY CHARACTERISTICS 


Classification of ALMM Low 

Program categorization 1 

Maximum potential rating AA+ 

Current available credit enhancement (%) 51.98 

Target credit enhancement commensurate with 

the highest credit rating (%) 48.71 


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Note that we calculate the current credit enhancement as (assets /liabilities. 

ALMM--Asset-liability mismatch. 

LIABILITIES MATURITY PROFILE 

Year Percentage of covered 

bonds outstanding (%) 

2015 20.00 

2017 20.00 

2019 20.00 

2022 20.00 

2024 20.00 

TOTAL 100.00 

Deutsche Bank SAE's covered bonds' weighted-average life is 7.42 years, with 

an even maturity concentration taking place in 2015, 2017, 2019, 2022, and 

2024. 

MORTGAGE BOOK CHARACTERISTICS 

Residential General Mortgage Loan Book 

Principal balance (EUR) 7,552,432,779 

Total number of loans 66,916 

Average loan size (EUR) 112,864 

Weighted-average LTV ratio (%) 52.50 

Weighted-average seasoning (months) 53.12 

Weighted-average term to maturity (months) 269 

Floating-rate loans (%) 99.96 

Interest-only loans (%) 0.00 

LTV--Loan-to-value. 

Nonresidential General Mortgage Loan Book 

Principal balance (EUR) 832,089,542 









Residential Legacy* Mortgage Loan Book 






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*The legacy pool comprises loans which were originated by DB Credit before 

2008, when this origination channel was shut. DB Credit was an entity 

100%-owned by Deutsche Bank SAE, which merged with Deutsche Bank SAE in 2009. 

Nonresidential Legacy Mortgage Loan Book 


Total number of loans 20 








TOTAL MORTGAGE LOAN BOOK GEOGRAPHIC DISTRIBUTION (%) 

Andalucia 13.68 

Aragon 1.46 

Asturias 0.82 

Balearic Islands 1.77 

Basque Country 1.96 

Canary Islands 2.15 

Cantabria 0.32 

Castilla-La Mancha 2.93 

Castilla-Leon 2.53 

Catalonia 29.10 

Extremadura 0.80 

Galicia 2.05 

La Rioja 0.14 

Madrid 26.04 

Murcia 1.21 

Navarra 0.37 

Valencia 8.88 

Others 3.79 


Catalonia and Madrid are the regions with the highest concentration (29.10% 

and 26.04%, respectively) as the bank's strategy is to be present in big 

cities where there is a concentration of affluent clients, like Madrid and 

Barcelona. 

We assessed the likelihood that the borrowers would default on their mortgage 

payments (the foreclosure frequency), and the amount of loss on the subsequent 


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sale of the property (the loss severity, expressed as a percentage of the 

outstanding loan). We determined the total mortgage balance that we assume 

will default, and the total amount of this defaulted balance that is not 

recovered for the entire residential book, by calculating the weighted-average 

foreclosure frequency (WAFF) and the weighted-average loss severity (WALS). 

The product of the WAFF and WALS is the net loss that we assume may affect the 

portfolio in a 'AAA' scenario. At the 'AAA' level, the WAFF and WALS results 

were: 

WAFF (%) 30.22 

WALS (%) 29.50 

Assumed net credit loss (WAFF x WALS) (%) 8.91 

Our assessment indicated that this combination of factors, along with the 

appraisal of other risk factors, is commensurate with a 'AA+' rating on 

Deutsche Bank SAE's cédulas hipotecarias. 

The negative outlook on the covered bond rating reflects the negative outlook 

for the sovereign rating. 

RELATED CRITERIA AND RESEARCH 


• Covered Bond Ratings Framework: Methodology And Assumptions, June 26, 

2012 

• Counterparty Risk Framework Methodology And Assumptions, May 31, 2012 

• Covered Bonds Counterparty And Supporting Obligations Methodology And 

Assumptions, May 31, 2012 

• Assessing Asset-Liability Mismatch Risk In Covered Bonds: Revised 

Methodology And Assumptions For Target Asset Spreads, April 24, 2012 

• European Structured Finance Scenario And Sensitivity Analysis: The 

Effects Of The Top Five Macroeconomic Factors, March 14, 2012 

• Global Structured Finance Scenario And Sensitivity Analysis: The Effects 

Of The Top Five Macroeconomic Factors, Nov. 4, 2011 

• Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And 

Assumptions, June 14, 2011 

• Principles Of Credit Ratings, Feb. 16, 2011 

• Methodology: Credit Stability Criteria, May 3, 2010 

• Revised Methodology And Assumptions For Assessing Asset-Liability 

Mismatch Risk In Covered Bonds, Dec. 16, 2009 

• Use Of CreditWatch And Outlooks, Sept. 14, 2009 

• Methodology And Assumptions: Update To The Cash Flow Criteria For 

European RMBS Transactions, Jan. 6, 2009 

• Methodology And Assumptions: Update To The Criteria For Rating Spanish 

Residential Mortgage-Backed Securities, Jan. 6, 2009 

• European Legal Criteria For Structured Finance Transactions, Aug. 28, 

2008 

• A Listing Of S&P's New Actions Aimed At Strengthening The Ratings Process, 

Feb. 7, 2008 

• Expanding European Covered Bond Universe Puts Spotlight on Key Analytics, 


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July 16, 2004 

• Cash Flow Criteria for European RMBS Transactions, Nov. 20, 2003 

• Criteria for Rating Spanish Residential Mortgage-Backed Securities, March 

1, 2002 

RATINGS LIST 

Program/ 

Country: Covered bond type 

RATINGS ASSIGNED; OUTLOOK NEGATIVE 

Rating 

Deutsche Bank, S.A.E. AA+/Negative 

Spain: Mortgage Covered Bonds ("Cédulas Hipotecarias") 

Additional Contact: 

Structured Finance Europe; StructuredFinanceEurope@standardandpoors.com 



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Ratings Assigned To Deutsche Bank SAE's ... - Standard & Poor's

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