Pfandbriefe Roundtable 2005

IFR Pfandbriefe Roundtable 2005
3 min read

For as long as covered bonds continue to rival supra/sovereign/agencies in the high-grade frequent borrower/benchmark stakes, it is highly unlikely that there will ever be a shortage of talking points.

As the father of the jumbo covered bond market, German pfandbrief has a tradition to uphold in sustaining its prominence among the growing family of covered bond jurisdictions. Few will disagree, meanwhile, that an expanding list of covered bond issuers can only benefit the whole. While countries coming on stream may clearly not wish – nor need – to race toward frequent benchmark status, the new investors introduced to the product via the inception of a new jurisdiction can only feed back into the overall market, hence a rising tide lifting all boats.

A particularly interesting point of discussion at the IFR Pfandbriefe Roundtable arose over whether the tentacles of investor proliferation may actually reach American shores. At first glance, this might appear highly improbable and even irrelevant. Why would the most developed mortgage bond market on the planet possibly need something else? And why indeed, would pfandbrief issuers need to go out of their way for this new investor base, given that most successful deals are comfortably oversubscribed anyway?

Efforts to market the product in the US have, moreover, proved distinctly fruitless in the past, yet serious talk is now in the air that some US investors have started to sit up and take notice, and that a renewed and readjusted marketing approach may attempt to further stimulate this – and possibly with a brand new US product.

The issue of liquidity is always bound to loom large in a major market sector. Jumbo pfandbrief celebrated its 10-year anniversary earlier this year, and there have naturally been a few bumps along the road. The questions over what actually defines liquidity – and the accompanying debate over market-making obligations – goes on.

While a more measured approach is now far more in vogue – the days of over-optimistic €5bn blockbusters are well behind us – there remain disagreements over the minimum size of issue that investors will require. Furthermore, is liquidity really only measured by a minimum issue size, or does size really not matter when relative volatility is analysed? What happens when an ageing bond issue challenges the established conventions on market-making rules? And can issuers and market-makers ever really come to a consensus – or even market-makers among themselves?

More technical questions over product definition also shot back and forth across the table. Are investors really happy with the increasing degree of foreign exposure of German banks? Just why is it that RMBS is not allowed in the pfandbrief collateral pool within Germany? And in what way will we expect Landesbanks to change their business models in the light of the loss of state guarantees?

IFR brought together a diverse group from the underwriter, borrower and analyst communities, together with Louis Hagen, executive director of the Association of German Pfandbrief Banks (VDP). Franz-Josef Kaufmann attended from Eurohypo; underwriters were represented by Christian Reusch from HVB, Ted Lord from Barclays Capital and Joerg Huber from LBBW; and the analysts were Frank Will of RBS and Christoph Anhamm from ABN AMRO.

PFANDBRIEFE 2005