ANNUAL REPORT 2006 - DG Hyp

CREDIT TREASURY
In the Credit Treasury division, active management of
DG HYP’s real estate financing portfolio was consistently
developed further during the 2006 financial year. To manage
the portfolio, the bank's risk management team constantly
monitors exposure, with the objective of optimising
the risk/return profile of our assets and thus achieving a
more efficient use of our capital. In addition to buying,
selling and hedging real estate financing portfolios,
DG HYP is increasingly leveraging its competence in this
field to offer portfolio management consulting services for
third parties. We are thus also expanding, in particular, our
range of services as a centre of competence for real estate
financing in the German cooperative banking sector.
Loan securitisations and portfolio transfers
continue to grow
Securitisation markets continued to grow in the 2006
financial year, particularly for real estate assets under RMBS
and CMBS. This shows that the importance of actively
transferring risk in real estate lending is continuing to
grow.
At the same time, direct purchases and sales of real
estate financing portfolios are growing dynamically. In the
past few years, vibrant trading in non-performing loans has
developed. This is primarily driven by international
investors, and mostly comprises large-volume deals. This
market already reached a high degree of maturity in Germany
in a relatively short period, with record transaction
volumes seen in 2005 and 2006. In the meantime, average
transaction sizes are starting to decrease, with an increasing
number of smaller banks joining the fray to reduce
their stocks of non-performing loans. This sector continues
to offer substantial business potential – in particular with
regard to the German cooperative banking sector – which
24 Deutsche Genossenschafts-Hypothekenbank AG | Annual Report 2006
Management Report
means that annual transaction volumes will decrease over
the coming years, alongside an increasing number of transactions.
We also believe that buying and selling problem-free
real estate financing portfolios (performing loans) offers
interesting potential for business. Equity management,
which is enjoying additional impetus at present thanks to
Basel II, and strategic considerations (such as reducing nonstrategic
portfolios, focusing on target customers and core
business) means that the real estate lending sector is
increasingly focusing on this option. Lending and capital
markets are merging, which is creating the latitude
needed to further expand active portfolio management.
Further growth for active portfolio management
In view of these developments, DG HYP further
increased its transaction volumes on the credit and capital
markets during the 2006 financial year. DG HYP also further
increased investment in structured credit products during
the year: in this area, our exposure to MBS purchases
on the secondary market is with a selective investment
strategy. In addition, DG HYP further expanded its involvement
in real estate lending portfolios by buying retail portfolios
in the rest of Europe, based on synthetic structures,
with an initial true buy transaction in October 2006. In so
doing, DG HYP took 1,590 private mortgage loans in Germany
onto its own books from Antwerp-based Argenta
Spaarbank N.V., with a total volume of € 162 million.