Pfandbriefe/Covered Bonds 2005 - No. 11 scores

Seemingly impervious to wider credit market woes, the Covered Bond sector goes from strength to strength – offering borrowers reliable access to cheap funding and providing investors with a high-grade substitute for government or agency debt. Though many a sales desk may trumpet the sector's legally or contractually assigned virtue – that imposes a more credible degree of fiscal discipline than governments adhere to under their self-serving Stability & Growth Pact – it is naturally not as liquid as government bonds. To date, liquidity is...

The covered bond sector is the only remaining bond market to maintain what some would say is an anachronistic system of market making – more colloquially known as "head-to-head" or "knock-for-knock" – at a time when all other markets have matured into a so-called "order-driven" system. "The covered bond sector follows the principles of supranational/agency/sovereigns – book-built, but they still need to get up the curve in terms of secondary market. Head-to-head is like the Dark Ages . . . all other markets stopped some time ago,” summarised...

What exactly prompted you to establish the think tank? Although it is still difficult today, three years ago it was impossible to discuss “pan-European” mortgage markets even from a basic organisational perspective. On the primary side, markets were distinctly national, with local champions heavily vested in the differences of their products, processes and practices. On the secondary side, the entire industry – from lobby groups to investment banks to rating agencies – were divided over funding in a way that would inevitably collide. Few were...

Such is the standing of Ireland's asset cover pool monitor that other jurisdictions – notably the German pfandbriefe sector – look set to emulate some of its basic principles. Dera McLoughlin, auditor at Mazars which is charged with overseeing the Bank of Ireland's collateral pool, explained that "ISRA, the Irish supervisory authority, devolves power to Collateral Asset Monitor (CAM) – which effectively means it assumes more of a regulatory role. This compares to Germany where current monitoring of the asset pool is in the hands of a trustee ...

While the first private sector pfandbrief was issued in 1862 by Frankfurter Hypotheken – with the Mortgage Bank Act following around the turn of the century – there had actually been some public issues even earlier, in Prussia in the late 1770s. For most of the last century the German market was purely domestic, and by 1990 – with the government issuing increasing sums of debt to finance unification – the pfandbriefe seemed to lose its relevance. In 1980, total outstanding pfandbriefe volumes represented a little over half of all...

I f net outstanding mortgage growth in Spain is anything to go by, it is difficult to envisage a material near-term fall in overcollateralisation (OC) of cedulas hipotecarias (CH). From February 2004 to February this year, figures from the Asociacion Hipotecaria Espanola show net mortgage growth rose by €119bn to €602bn, or 25% year-on-year. This compares to 13.2% in 1985 and 11.1% in 1995. That the rate was steady in the 10 years to 1995 but has since accelerated sharply, probably has less to do with the falling birthrate than changing owner...

Progress on the 4% of asset value ceiling to covered bond issuance appears to be gaining ground. The FSA's 4% ceiling was never intended as a hard limit, though the way in which it was initially reported may have given this impression. The cap appeared draconian in light of the comparison with Germany where borrowers can issue up to 60% of their capital. Sources close to the regulator explained their reasoning: "UK issuers also rely on retail funding while overseas they are wholesale banks – and therefore the issue of depositor protection is...

The year 2005 marks the 200th anniversary of the Battle of Trafalgar, which turned the tide of Napoleon’s pan-European ambitions. In October 1805 the British Royal Navy under the command of Admirals Nelson and Collingwood destroyed a combined Franco-Spanish fleet off Cape Trafalgar on the coast of Spain. As bankers are not always strong on history, such an anniversary will have escaped their notice, and hence its relevance to the fine workings of the carefully calibrated financial markets is unlikely to be readily appreciated. But let us blow...

The Italian senate in early May approved an amendment to the law 130 that should allows private sector Italian banks to issue covered bonds. The law is expected to go to the lower house on May 9 and should be approved as, being under Fiducia decree, parliamentary debate is not required. The present law 130 provides the basis to issue ABS structures, but with the amendment, borrowers will be allowed to provide guarantees. Sources familiar with the process say borrowers will be able to issue under the true sale initiative to a special purpose...

High street competition notwithstanding, Nationwide is the world's largest mutual society, and as such – by law – must fund at least 50% of its assets with its retail deposits. In fact, Nationwide exceeds that limit, with retail deposits accounting for almost 70% of its asset base. The borrower looks to the wholesale markets to fund the balance via two MTN programmes (US dollar and euro-denominated) and other short-term money market instruments. Mark Hedges, head of structured finance at Nationwide, explained how covered bonds fit into its...

For Abbey, 2004 was a year of restructuring on the back of the acquisition by SCH last November. Net lending market share for the year was significantly reduced at just 3.1%. Other factors have been at play, including the introduction of new UK mortgage regulation that led the bank to withdraw some products, and a strategic decision to move away from lower-margin business. Earlier this year, Abbey appointed Barclays Capital, Citigroup and Deutsche Bank as lead arrangers for its €12bn covered bond programme, with the inaugural issue set to...

Sampo Bank, Finland's third largest with total assets of around €19bn, is preparing a transaction that will see it become not only the first Finnish entrant into the sector but also the first from the entire Nordic region. "We have a substantial share [14%] of a growing mortgage market that is in very good shape at the moment," says Lauri Iloniemi, head of asset and liability management at Sampo Bank and a board member of its mortgage bank. "Prices are rising but we are not building up a bubble." The consequent demand for mortgages offers Sampo...