Transcript Securitisation Seminar Belgrade, 6th of December 2007

Securitisation Seminar
Belgrade,
6th of December 2007
The Pfandbrief
Legal framework and main differences
compared with securitisation.
An easy, cheap and always deep source
for funding of mortgage loans
1
Pfandbriefe / Covered Bonds
Agenda
Klaus Jeckel
Dipl. Inf. Univ.
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
A
Introduction
Fundamentals
B
The Subprime Crisis
C
Definition of Covered Bonds
Legal Framework
D
Pfandbrief Act in Germany
E
Comparison with MBS
Discussion
2
Pfandbriefe / Covered Bonds
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Characteristics of a
Mortgage Loan
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
Mortgage Loan
 high amount
 long maturity
 secured by mortgage
at property and land
 low interest rate
3
Pfandbriefe / Covered Bonds
Sources of Funding
Klaus Jeckel
Dipl. Inf. Univ.
22.07.2015
Sources of Funding
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
 Equity
 Deposits
 Money Market
(short term loans from banks)
 obligations
(unsecured bonds)
 MBS (mortgage backed securities)
 Pfandbriefe (mortgage covered bonds)
4
Pfandbriefe / Covered Bonds
Costs of Funding
Klaus Jeckel
Dipl. Inf. Univ.
22.07.2015
Goal:
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
low interest rates for loans
--> the funding has to be designed
as cheap as possible
5
Pfandbriefe / Covered Bonds
Cost of Funding
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Cost of Funding
 Interest rate curve
 Credit risk in view of the investors --> rating
 Costs of issuance
— once for the direct issuance process
• Structuring, prospectus, rating, …
— on the long run for covering investors,
rating agencies, authorities, …
• e.g. frequently issuing reports, risk management,
edp etc.
• Servicing in case of MBS
6
Pfandbriefe / Covered Bonds
Costs of Funding
Klaus Jeckel
Dipl. Inf. Univ.
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
Fundamental:
the higher the investor assesses the risk, the
higher the interest rate has to be
he demands!
--> the lower the risk,
the lower the interest will be
7
Pfandbriefe / Covered Bonds
Costs of Funding
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Solution
 Increase creditworthiness of the bond
Trick:
— create collateral pool for the bond
— separate this collateral pool from the bank
— make the pool insolvency remote!
 the bond can reach an AAA rating, independent
from bank rating!
8
Pfandbriefe / Covered Bonds
Securitisation / Pfandbrief
Klaus Jeckel
Dipl. Inf. Univ.
22.07.2015
Two techniques to make the
collateral pool insolvency remote:
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
Securitisation
Pfandbrief
- based on contract
- true sale
- SPV is needed
- off balance
- investor takes credit risk
- rating absolute necessary
- based on law
- legally separated
- no SPV
- on balance
- credit risk remain at issuer
- rating no must (nat. investors)
9
Pfandbriefe / Covered Bonds
Klaus Jeckel
Classification
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
Law based
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Covered Bonds
Pfandbriefe
Mortgage banking act
Pfandbrief act
Specialized
mortgage banks
 only low risk
mortgage business
Universal banks
(with licence)
 mortgage business
is core business
 private placements
 Jumbos
 private placements
 Jumbos
Contractual
Structured
Covered Bonds
Securitisation
technique is used
Universal banks
 only Jumbos
10
Pfandbriefe / Covered Bonds
Agenda
Klaus Jeckel
Dipl. Inf. Univ.
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
A
Introduction
Fundamentals
B
The Subprime Crisis
C
Definition of Covered Bonds
Legal Framework
D
Pfandbrief Act in Germany
E
Comparison with MBS
Discussion
11
Pfandbriefe / Covered Bonds
Subprime Crisis
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Until the US subprime crisis summer 2007
 Banking sector over liquid
 Spreads for low quality papers very small
 Investors bought everything
Since the crisis …






Worldwide liquidity squeeze
Flight to quality
Spreads for lower quality are exploded
Issuing MBS very hard if not to say impossible
Even AAA tranches of MBS under massive pressure
Issuing Pfandbriefe always to good conditions possible
12
Pfandbriefe / Covered Bonds
Klaus Jeckel
Subprime Crisis
Dipl. Inf. Univ.
email: [email protected]
500
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
New issues of ABS/MBS broke down in summer 2007
EUR bn
EUR 401.8 billion YTD
450
400
350
300
250
200
2004
2005
2006
2007
150
100
50
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Source:DB Global Markets Research
22.07.2015
13
Pfandbriefe / Covered Bonds
Klaus Jeckel
Subprime Crisis
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
BBB Indicative spread history
AAA Indicative spread history
80
bp
70
Prime RMBS
SME CLO
450
Leverage loan CLO
Conduit CMBS
400
bp
Prime RMBS
SME CLO
Leverage loan CLO
Conduit CMBS
350
60
US Subprime Crisis
US Subprime Crisis
300
50
250
40
200
30
150
20
100
10
Source: DB Global Markets Research
14
Oct-07
Aug-07
Jun-07
Apr-07
Feb-07
Dec-06
Oct-06
Aug-06
Jun-06
Apr-06
Feb-06
Dec-05
Oct-05
Aug-05
Jun-05
Apr-05
Oct-07
Aug-07
Jun-07
Apr-07
Feb-07
Dec-06
Oct-06
Aug-06
Jun-06
Apr-06
Feb-06
Dec-05
Oct-05
Aug-05
Jun-05
50
Apr-05
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Dramatically spread widening of MBS issues
Pfandbriefe / Covered Bonds
Klaus Jeckel
Subprime Crisis
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
France Covered
Germ an M ort gage Pf andbrief e
Germ an Public Pf andbrief e
Spanish Covered
O t her Covered
Ireland Covered
U K Covered
38
28
18
8
-2
Source:DB Global Markets Research
N o v -0 7
O c t -0 7
Se p -0 7
A u g -0 7
J u l-0 7
J u n -0 7
M ay -0 7
A p r-0 7
M ar-0 7
Fe b -0 7
-12
J an -0 7
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Spreads of Covered Bonds (vs. Swap)
15
Pfandbriefe / Covered Bonds
Agenda
Klaus Jeckel
Dipl. Inf. Univ.
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
A
Introduction
Fundamentals
B
The Subprime Crisis
C
Definition of Covered Bonds
Legal Framework
D
Pfandbrief Act in Germany
E
Comparison with MBS
Discussion
16
Pfandbriefe / Covered Bonds
Pfandbrief
Legislation in Europe
Klaus Jeckel
Dipl. Inf. Univ.
2002
2006
2003
Legislation in countries of
the EU/EEA/CH
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
1999
23
2000
2006
2003
1998
2007 
2003
2005
 1997
1931
2005
26
Legislation in
other countries
2004
3
1998
1995
2005
2006
2006
1996
1997
Concrete legislation
in preparation
2006
2
2000
2007
28
2007
(as of September 2007)
©
22.07.2015
17
Covered Bond Structures
in Europe
Market Shares
Pfandbriefe / Covered Bonds
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Market Share of the European Covered Bond Countries
in the European Covered Bond Market
Net herlands
7,50
It aly
0,39%
10,00
Aust ria 0,52%
17,10
Swit zerland 0,90%
23,10
Luxembourg 1,2%
28,51
1,5%
UK
50,59
2,6%
Czech
Republic
5,5
0,29%
Finland
3,00
0,16%
Port ugal
2,00
0,10%
Slovakia
1,86
0,097%
Poland
0,45
0,024%
Lat via
0,06
0,003%
Sweden
55,21
2,9%
Lit huania
0,01
0%
Ireland
61,81
3,2%
France
154,60
8,1%
Germany
948,81
49,7%
Spain
226,36
12%
For Austria the figures are tentative.
22.07.2015
Hungary
5,92
0,31%
Denmark
307,04
16%
end of 2006: 1.910 bn €
(source: EMF/vdp – 27.7.2007)
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Pfandbriefe / Covered Bonds
Pfandbrief
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
What is a Pfandbrief (Mortgage Covered Bond)?

Debt security which is a general obligation of the issuer,
issued against a collateral cover pool
— held on-balance of the issuer
— consisting of residential (and commercial) property
held in a cover pool

issuance and management based on strict quality
standards laid out in a law

Pfandbrief issuers are subject to special supervision in
addition to ordinary bank supervision

in case of issuers insolvency:
— separation of cover pool from insolvency estate
— preferential claim of Pfandbrief creditors
against separated cover pool
— no acceleration of Pfandbrief bonds
©
19
Pfandbriefe / Covered Bonds
From Mortgage Loan
to Pfandbrief
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Mortgage Loans
Pfandbriefe
Cover Pool
Cover Pool
Supervisor
Repayments
Non Performing Loans
20
Pfandbriefe / Covered Bonds
Congruence Criterions
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Cover Pool >= Pfandbriefe
21
Pfandbriefe / Covered Bonds
EU-law for mortgage bonds
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
EU-law for mortgage bonds
 Art. 22 (4) UCITS-Directive (Investment Directive)
 Art. 49 (1) letter I); Art. 63 (2) of the Consolidated
Banking Directive
 Art. 22 (4) of the 3rd Directive on life insurance
companies
 Art. 22 (4) of the 3rd Directive on other insurance
companies
 Art. 11 (2) of the Directive on capital adequacy for
investment firms
 Art. 1 No 1 (3) of the Directive on deposit insurance
 EZB: Tier 1 (eligible as collateral)
©
22
Pfandbriefe / Covered Bonds
UCITS Directive
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Criteria of Art. 22 IV (UCITS Directive)

Article 22(4) of this Directive defines the minimum requirements that
provide the basis for privileged treatment of so-called “certain bonds” in
different areas of European financial market regulation.

Article 22(4) allows a special treatment,
 when these “certain” bonds are issued by a credit institution
which has its registered office in a Member State
 and is subject by law to special public supervision designed to
protect bondholders.
 Sums deriving from the issue of these bonds must be invested in
conformity with the law in assets which, during the whole period
of validity of the bonds, are capable of covering claims attaching
to the bonds,
 which, in the event of failure of the issuer, would be used on a
priority basis for the reimbursement of the principal and payment
of the accrued interest.
©
23
Pfandbriefe / Covered Bonds
Klaus Jeckel
Art. 22 (IV) UCITS
Dipl. Inf. Univ.
Meaning of Art. 22 IV UCITS-Directive
 „Mortgage bond“ as privileged investment instrument
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
Directive on
investment
funds
Directive on
life insurance
companies
Directive on
large exposure
credits
Directive on
capital
adequacy
Directive on
deposit
insurance
funds may be
invested in
mortgage
bonds / bonds
according to
Art. 22 IV
UCITS:
„bound assets“
may be
invested in
mortgage
bonds / bonds
according to
Art. 22 IV
UCITS:
mortgage
bonds / bonds
according to
Art. 22 IV
UCITS:
mortgage
bonds / bonds
according to
Art. 22 IV
UCITS:
mortgage
bonds / bonds
according to
Art. 22 IV
UCITS:
are not
included in the
calculation of
the upper limit
have to be
covered only
with half of
the equity
are excluded
from the term
of „deposit“
25% instead
of 5-10% in
securities of
one issuer
40% instead
of 5% in
securities of
one issuer
24
22.07.2015
©
Pfandbriefe / Covered Bonds
CRD
Klaus Jeckel
Dipl. Inf. Univ.
22.07.2015
Covered bonds benefit from privileged credit risk weightings
only if they fulfil the following requirements:
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
1. Compliance with the standards of Article 22(4)
of Directive 85/611/EEC (UCITS)
2. The asset pools that back the covered bonds must be
constituted only of assets of specifically-defined types and
credit quality
3. New quantitative restrictions on certain types of cover assets
were established (e.g. max 15% exposure to credit institutions).
4. The issuers of covered bonds backed by mortgage loans must
meet certain minimum requirements regarding mortgage
property valuation and monitoring
©
25
Pfandbriefe / Covered Bonds
ECBC’s Covered Bonds
Common Characteristics
Klaus Jeckel
Dipl. Inf. Univ.
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
Covered bonds are characterized by the following
common essential features that are achieved under
both special-law frameworks and general-law based
frameworks:
 The bond is issued by – or bondholders otherwise have full
recourse to – a credit institution which is subject to public
supervision and regulation.
 Bondholders have a claim against a cover pool of financial
assets in priority to unsecured creditors of the credit
institution.
 The credit institution has the ongoing obligation to maintain
sufficient assets in the cover pool to satisfy the claims of
covered bondholders at all times.
 The obligations of the credit institution in respect of the cover
pool are supervised by public or other independent bodies.
22.07.2015
Source: ECBC
26
Pfandbriefe / Covered Bonds
Agenda
Klaus Jeckel
Dipl. Inf. Univ.
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
A
Introduction
Fundamentals
B
The Subprime Crisis
C
Definition of Covered Bonds
Legal Framework
D
Pfandbrief Act in Germany
E
Comparison with MBS
Discussion
27
Pfandbriefe / Covered Bonds
Pfandbrief Act in Germany
Klaus Jeckel
Dipl. Inf. Univ.
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
Following key points are ruled out in Germanys
Pfandbrief Act and can be found equally or similarily
in many other legislations within Europe:
 issuer must be a credit institution
 issuer has to be licensed by banking supervisory authority
 public supervision
 suitable risk managing system has to be in place
 cover register
 eligibility criterions for cover assets
 independent appraisal of value of cover assets
 congruence principles cover pool and issued Pfandbriefe
 independent cover pool monitor
 transparency provisions
 exact rules in case of insolvency of the issuer
 no acceleration of Pfandbriefe in case of insolvency
 protection of the name “Pfandbrief”
28
Pfandbriefe / Covered Bonds
Pfandbrief Act
Klaus Jeckel
Dipl. Inf. Univ.
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
Issuer must be a credit institution
§1 (1) Pfandbrief banks are credit institutions whose business
consists in Pfandbrief business.
Issuer has to be licensed by banking supervisory authority
§2 (1) A credit institution …shall require the written licence of the
Federal Financial Supervisory Authority …
Public supervision
§3 Supervision
The supervisory authority shall carry out the supervision of
the Pfandbrief banks in accordance with the provisions of
this Act and of the German Banking Act.
29
Pfandbriefe / Covered Bonds
Pfandbrief Act
Klaus Jeckel
Dipl. Inf. Univ.
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
Suitable risk managing system
§27 (1) The Pfandbrief bank must have a suitable risk
management system for Pfandbrief business.
The system must ensure the identification, assessment,
control and monitoring of all risks related thereto such as, in
particular, counterparty risks, interest rate, currency and
other market price risks, operational risks and liquidity risks.
Cover register
§5 (1) The cover assets used to cover the Pfandbriefe … shall
be recorded by the Pfandbrief bank individually in the
register (cover register)… .
30
Pfandbriefe / Covered Bonds
22.07.2015
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
Eligibility criterions [§§12 – 15]
Appraisal of cover assets [§16]
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Cover Pool
Quality Demands
 Mortgage loans of residential properties
up to 60% of their mortgage lending value
 Mortgage loans of commercial properties
up to 60% of their mortgage lending value
— the mortgage lending value has to be evaluated by a
property expert who must be fully independent of the
loan decision.
 up to 10% of the cover (=substitute cover) [§19] can
consists of:
— Deposits to the ECB or qualified credit institutes
— Government bonds of countries of the EU, the OECD,
CH, USA, CAN or JAP
31
Pfandbriefe / Covered Bonds
Mortgage Lending Value
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
The Mortgage Lending Value :
 conservative evaluation
 future salebility
 considering the long-term lasting characteristics of
the objects
 normal, regional market conditions
 no speculative elements
 mortgage lending value <= market value
§16(2) Pfandbrief Act
32
Pfandbriefe / Covered Bonds
Klaus Jeckel
Funding
Dipl. Inf. Univ.
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
Belgrade, 6th of December 2007
Market
Market Price
Price
Mortgage
Mortg.
LendingValue
Value
LoanAmount
Amount
Loan
60%LTMV
LTMV
60%
22.07.2015
110
10
100
90
20
Borrowers
own equity
80
70
20
60
Must NOT be funded
by Pfandbriefe
50
40
30
20
10
0
60
Only this partial amount
is allowed to be funded
through Pfandbriefe!
33
Pfandbriefe / Covered Bonds
Pfandbrief Act
Klaus Jeckel
Dipl. Inf. Univ.
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
Congruence Principles
 The respective total volume of the Pfandbriefe outstanding
must at all times be covered ... .
§4(1)Satz 1 Pfandbrief Act
— Nominal value
— Interest revenue
— Net present value
 The Pfandbrief bank shall ensure continually ...
... that the prescribed cover is given at all times.
§4(4) Pfandbrief Act
--> the Pfandbrief bank is obliged
immediately to procure sufficient cover
in case of violation of the congruence criterions
34
Pfandbriefe / Covered Bonds
Pfandbrief Act
Klaus Jeckel
Dipl. Inf. Univ.
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
Independent cover pool monitor
§7(1) A cover pool monitor and at least one deputy has to be
appointed at each Pfandbrief bank
§7(3) The appointment shall be made by the supervisory
authority
§8 Duties of the cover pool monitor
 The cover monitor shall ensure:
— that the prescribed cover for the Pfandbriefe exist
at all times
— that the assets used at cover … are recorded in the
cover register
 Prior to issue a Pfandbrief, the cover pool monitor shall
confirm that the prescribed cover exists and is registered.
 Cover assets may be deleted from the register only with
the agreement of the cover monitor
35
Pfandbriefe / Covered Bonds
Pfandbrief Act
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
The Pfandbrief bank shall publish on a quarterly basis…
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
§28 Transparency provisions
 The total volume of the Pfandbriefe outstanding as well as
the cover pool in the amount of
— Nominal value
— Net present value
— Risk adjusted net present value (stress test)




Maturity structure of Pfandbriefe and cover assets
Distribution in amounts of cover assets
Regional distribution
Relation of commercial / residential use
— Type of use
 Non performing loans (min. 90 days in arrears)
36
Pfandbriefe / Covered Bonds
Pfandbrief Act
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Rules in case of insolvency of the issuer
§30 Insolvency, appointment of the cover pool administrator
(1) If insolvency proceedings are opened in respect of the
Pfandbrief banks assets, the assets recorded in the cover
register shall not be included in the insolvency estate.
 Court what has jurisdiction appoints a cover pool administrator
 Cover pool administrator ≠ insolvency administrator
 Cover pool administrator has the right to manage and dispose
the recorded assets and satisfies the Pfandbrief creditors.
 Pfandbriefe are not accelerating!
§32 Transfer of the cover pool and liabilities
(1) With the written approval of the supervisory authority the
cover pool administrator may transfer all or a part of the
assets recorded in the cover register, … , and liabilities from
Pfandbriefe as an entirety to another Pfandbrief bank …
37
Pfandbriefe / Covered Bonds
Cover Pool
in Case of Insolvency
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
issuer's
insolvency
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Segregation of cover pool in case of insolvency
Pfandbrief bank
other assets
Insolvency administrator
other assets
(=insolvency estate)
Cover pool administrator
cover pool
cover pool
©
38
Pfandbriefe / Covered Bonds
Pfandbrief Act
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
§ 41 Protection of the name “Pfandbrief”
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Name Protection
 Bonds may only be issued
under the name “Pfandbrief” or another name
that contains the word “Pfandbrief”
by banks that have been granted a licence to
conduct Pfandbrief business
39
Pfandbriefe / Covered Bonds
Agenda
Klaus Jeckel
Dipl. Inf. Univ.
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
A
Introduction
Fundamentals
B
The Subprime Crisis
C
Definition of Covered Bonds
Legal Framework
D
Pfandbrief Act in Germany
E
Comparison with MBS
Discussion
40
Pfandbriefe / Covered Bonds
Klaus Jeckel
Covered Bond / MBS
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Fundamental differences: covered bonds vs. MBS
Covered Bond
MBS
On balance
Off balance
Strictly regulated by law
No law required, rules on contractual
basis
One big dynamic cover pool covers all
outstanding covered bonds
For every single MBS emission one
separate, closed cover pool is required
Congruence criterions defined by law
Issuer defines congruence criterions
and describes them in prospectus
Credit risk is taken by the issuer
Credit risk is sold to the investor
Issuer is obliged (by law) to add cover if
necessary
Once the pool is sold to the SPV,
nothing will be added
Issuance procedure is very simple and
cheap
Structuring and issuing is very complex
(via SPV) and costly
Short and simple prospectus
Very detailed prospectus and with
great length absolutely necessary
Rating helpful but not a must
Rating absolutely necessary
Equity-charching for assets
Equity release
41
Pfandbriefe / Covered Bonds
Investors
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
What the Investors want?







high quality
easy understandable bonds
Transparency
straight bonds
liquid bonds
prefer rated bonds
national Investors want national currency
--> Pfandbriefe
42
Pfandbriefe / Covered Bonds
Pfandbrief
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015


Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
A „Pfandbrief“ is a mortgage covered bond

very strictly regulated by law (Pfandbrief Act)
all banks who are issuing Pfandbriefe have to fulfil in addition to the
general banking act specific regulations given from the banking
supervisory authority BaFin
all Pfandbriefe of an issuer (must be a bank) are collateralized by
one common, dynamic cover pool
The cover pool




is strictly regulated by law and additional BaFin-regulations
— credit risks (evaluation of properties --> mortgage lending value)
— market risks (must cover all Pfandbriefe even under stress
scenarios)
is supervised by an external monitor appointed from banking
supervision authority BaFin
in case of bankruptcy of the issuer, will be extracted by law from the
other assets and independently managed by a third independent
administrator as long as all outstanding Pfandbriefe are served
is bankruptcy remote
43
©
Pfandbriefe / Covered Bonds
Securitisation in Germany
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
 In general mortgage loans (and their credit risk) are
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Pfandbriefe vs. MBS in Germany
remaining on the balance sheet of the issuing
Pfandbrief banks
 Selling of credit risks via MBS or other credit
derivatives is a great exception
— if yes, then mostly „non performing loans“
— Instrument to manage credit risk and
to reduce equity charging
 MBS is too complex and too large-scaled in
management and backoffice
 MBS is not a suitable product for funding
44
Pfandbriefe / Covered Bonds
Securitisation is sexy
Klaus Jeckel
Dipl. Inf. Univ.
22.07.2015
Pfandbrief is boring?
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
email: [email protected]
Securitisation is sexy!
 Investment banks love it
 Law firms love it
 Rating agencies love it
But your staff despairs!
45
Pfandbriefe / Covered Bonds
Contact
Klaus Jeckel
Dipl. Inf. Univ.
email: [email protected]
22.07.2015
Belgrade, 6th of December 2007
Securitisation Seminar
„The Pfandbrief“
Contact addresses:
Internet: www.pfandbrief.org
Bloomberg: HYP <Go>
Association of German Pfandbrief Banks
Georgenstraße 21
D-10117 Berlin
email: [email protected]
Tel: +49-30-20915 100
Consultant
Fax:+49-30-20915 419
Klaus Jeckel, Dipl. Inf.
e-mail: [email protected]
Tel: +420-376 390 010
+420-774 865 869
46