1 securitisation seminar belgrade, 6 th of december 2007 the pfandbrief the pfandbrief legal...

1

Securitisation Seminar

Belgrade, 6th of December

2007

The PfandbriefThe PfandbriefLegal framework and main differences compared with securitisation.An easy, cheap and always deep source for funding of mortgage loans

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

2

Pfandbriefe / Covered BondsPfandbriefe / Covered Bonds

Klaus Jeckel Dipl. Inf. Univ. email: [email protected]

19.04.23

Agenda

AA IntroductionIntroductionFundamentalsFundamentals

BB The Subprime CrisisThe Subprime Crisis

CC Definition of Covered BondsDefinition of Covered BondsLegal FrameworkLegal Framework

DD Pfandbrief Act in GermanyPfandbrief Act in Germany

EE Comparison with MBSComparison with MBSDiscussionDiscussion

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

3



19.04.23

Characteristics of a Mortgage Loan

Mortgage Loan

high amount long maturity secured by mortgage

at property and land low interest rate

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

4



19.04.23

Sources of Funding

Sources of Funding

Equity Deposits Money Market

(short term loans from banks)

obligations(unsecured bonds)

MBS (mortgage backed securities) Pfandbriefe (mortgage covered bonds)

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

5



19.04.23

Costs of Funding

Goal:Goal:

lowlow interest rates for loans

--> the funding has to be designed

as cheapcheap as possible

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

6



19.04.23

Cost of Funding

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

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

7



19.04.23

Costs of Funding

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

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

8



19.04.23

Costs of Funding

Solution

Increase creditworthiness of the bond

Trick: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!

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

9



19.04.23

Securitisation / Pfandbrief

Two techniques to make the collateral pool insolvency remote:

Securitisation Pfandbrief- based on contract - based on law- true sale - legally separated- SPV is needed - no SPV- off balance - on balance- investor takes credit risk - credit risk remain at issuer- rating absolute necessary - rating no must (nat. investors)

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

10



19.04.23

Classification

Mortgage banking act

Specialized mortgage banks only low risk mortgage business

private placements Jumbos

Securitisation technique is used

Universal banks

only Jumbos

Pfandbrief act

Universal banks(with licence) mortgage business is core business

private placements Jumbos

Covered Bonds

Law based

Pfandbriefe

Contractual

Structured Covered Bonds

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

11



19.04.23

Agenda






Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

12



19.04.23

Subprime Crisis

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

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

13



19.04.23

Subprime Crisis

Source:DB Global Markets Research

New issues of ABS/MBS broke down in summer 2007

50

100

150

200

250

300

350

400

450

500

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

EUR bn

2004

2005

2006

2007

EUR 401.8 billion YTD

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

14



19.04.23

50

100

150

200

250

300

350

400

450

Apr

-05

Jun-

05

Aug

-05

Oct

-05

Dec

-05

Feb-

06

Apr

-06

Jun-

06

Aug

-06

Oct

-06

Dec

-06

Feb-

07

Apr

-07

Jun-

07

Aug

-07

Oct

-07

bpPrime RMBS SME CLO

Leverage loan CLO Conduit CMBS

10

20

30

40

50

60

70

80

Apr

-05

Jun-

05

Aug

-05

Oct

-05

Dec

-05

Feb-

06

Apr

-06

Jun-

06

Aug

-06

Oct

-06

Dec

-06

Feb-

07

Apr

-07

Jun-

07

Aug

-07

Oct

-07

bp Prime RMBS SME CLO

Leverage loan CLO Conduit CMBS

Subprime Crisis

AAA Indicative spread history BBB Indicative spread history

Source: DB Global Markets Research

US Subprime Crisis US Subprime Crisis

Dramatically spread widening of MBS issues

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

15



19.04.23

Subprime Crisis

Spreads of Covered Bonds (vs. Swap)

-12

-2

8

18

28

38Ja

n-07

Feb-

07

Mar

-07

Apr

-07

May

-07

Jun-

07

Jul-0

7

Aug

-07

Sep-

07

Oct

-07

Nov

-07

France CoveredGerman Mortgage PfandbriefeGerman Public PfandbriefeSpanish CoveredOther CoveredIreland CoveredUK Covered

Source:DB Global Markets Research

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

16



19.04.23

Agenda






Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

17



19.04.23

Legislation in countries of the

EU/EEA/CH

Legislation inother countries

Concrete legislation

in preparation

22

2266

2288

2323

331998

1997

1995

1998

1997

1999

2000

2000

2002

2006

2006

2004

20062003

2003

2003

2005

2005

2005

20061996

2007

(as of September 2007)

PfandbriefLegislation in Europe

1931

2007

2006

2007

©

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

18



19.04.23

Market Share of the European Covered Bond Countries in the European Covered Bond Market

(source: EMF/vdp – 27.7.2007)

Denmark307,0416%

Lithuania0,010%

Latvia0,06

0,003%

Czech Republic

5,50,29%

Hungary5,92

0,31%

Finland3,00

0,16%Portugal

2,000,10%

Slovakia1,86

0,097%

Poland0,45

0,024%

Netherlands7,50

0,39%Italy10,000,52%Austria

17,100,90%

Luxembourg28,511,5%

Switzerland23,101,2%

Sweden55,212,9%

UK50,592,6%

Ireland61,813,2%

France154,608,1%

Spain226,3612%

Germany948,8149,7%

Covered Bond Structures in Europe Market Shares

For Austria the figures are tentative.

end of 2006: 1.910 bn €

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

19



19.04.23

Pfandbrief

What is a Pfandbrief (Mortgage Covered What is a Pfandbrief (Mortgage Covered Bond)?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

©

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

20



19.04.23

From Mortgage Loanto Pfandbrief

Non Performing LoansRepayments

Cover PoolSupervisor

Pfandbriefe

Mortgage Loans

Cover Pool

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

21



19.04.23

Congruence Criterions

Cover Pool >= Pfandbriefe

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

22



19.04.23

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)

EU-law for mortgage bonds

EU-law for mortgage bonds

©

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

23



19.04.23

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.

UCITS Directive

©

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

24



19.04.23

Meaning of Art. 22 IV UCITS-Directive Meaning of Art. 22 IV UCITS-Directive „Mortgage bond“ as privileged investment „Mortgage bond“ as privileged investment instrumentinstrument

„bound assets“ may be

invested in mortgage

bonds / bonds according to

Art. 22 IV UCITS:

40% instead of 5% in

securities of one issuer

Directive on life insurance

companies

Directive on large exposure

credits

mortgage bonds / bonds

according to Art. 22 IV UCITS:

are not included in the calculation of the upper limit

Directive on capital

adequacy

mortgage bonds / bonds according to

Art. 22 IV UCITS:

have to be covered only

with half of the equity

Directive on deposit

insurance

mortgage bonds / bonds according to

Art. 22 IV UCITS:

are excluded from the term of „deposit“

Directive on investment

funds

funds may be invested in mortgage

bonds / bonds according to

Art. 22 IV UCITS:

25% instead of 5-10% in securities of one issuer

Art. 22 (IV) UCITS

©

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

25



19.04.23

Covered bonds benefit from privileged credit risk weightings only if they fulfil the following requirements:

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

CRD

©

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

26



19.04.23

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.

Source: ECBC

ECBC’s Covered BondsCommon Characteristics

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

27



19.04.23

Agenda






Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

28



19.04.23

Pfandbrief Act in Germany

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”

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

29



19.04.23

Pfandbrief Act

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.

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

30



19.04.23

Pfandbrief Act

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)… .

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

31



19.04.23

Cover PoolQuality Demands

Eligibility criterions [§§12 – 15]

Appraisal of cover assets [§16]

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

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

32



19.04.23

Mortgage Lending Value

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

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

33



19.04.23

Funding

60

20

20

10

0

10

20

30

40

50

60

70

80

90

100

110Market Price

Mortgage Value

Loan Amount

60% LTMV

Only this partial amount is allowed to be funded through Pfandbriefe!

Must NOT be fundedby Pfandbriefe

Borrowersown equity

Market Price

Mortg. Lending Value

Loan Amount

60% LTMV

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

34



19.04.23

Pfandbrief Act

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

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

35



19.04.23

Pfandbrief Act

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

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

36



19.04.23

Pfandbrief Act

§28 Transparency provisions

The Pfandbrief bank shall publish on a quarterly basis… 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)

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

37



19.04.23

Pfandbrief Act

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 estateshall 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 maymay transfer all or a part of the assets recorded in the cover register, … , and liabilities from Pfandbriefe as an entirety to another Pfandbrief bank …

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

38



19.04.23

Pfandbrief bankInsolvency

administrator

other assets

cover pool

issuer'sinsolvenc

y

cover pool

Cover pool administrator

Segregation of cover pool in case of insolvencySegregation of cover pool in case of insolvency

other assets(=insolvenc

y estate)

Cover Pool in Case of Insolvency

©

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

39



19.04.23

Pfandbrief Act

Name Protection

§ 41 Protection of the name “Pfandbrief”

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

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

40



19.04.23

Agenda






Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

41



19.04.23

Covered Bond / 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

Fundamental differences: covered bonds vs. MBS

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

42



19.04.23

Investors

What the Investors want?

high quality easy understandable bonds Transparency straight bonds liquid bonds prefer rated bonds national Investors want national

currency

--> Pfandbriefe

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

43



19.04.23

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 remotebankruptcy remote©

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

44



19.04.23

Securitisation in Germany

Pfandbriefe vs. MBS in Germany

In general mortgage loans (and their credit risk) are 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 notnot a suitable product for fundingfunding

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

45



19.04.23

Securitisation is sexy

Pfandbrief is boring?

Securitisation is Securitisation is sexysexy!!

Investment banks love it Law firms love it Rating agencies love it

But your staff despairs!

Sec

uri

tisa

tio

n S

emin

arS

ecu

riti

sati

on

Sem

inar

„„ Th

e P

fan

db

rief

“T

he

Pfa

nd

bri

ef“

Bel

gra

de,

6B

elg

rad

e, 6

thth o

f D

ecem

ber

200

7 o

f D

ecem

ber

200

7

46



19.04.23

Contact

Contact addresses:

Internet: www.pfandbrief.orgBloomberg: HYP <Go>

Association of German Pfandbrief BanksGeorgenstraße 21D-10117 Berlin email: [email protected]: +49-30-20915 100 ConsultantFax:+49-30-20915 419 Klaus Jeckel, Dipl. Inf.

e-mail: [email protected]:

+420-376 390 010

+420-774 865 869

1 securitisation seminar belgrade, 6 th of december 2007 the pfandbrief the pfandbrief legal...

Documents

bonds pfandbriefe

bonds klaus jeckel

rate slide

possible slide

credit risk credit risk

mbs discussion slide

case of mbs slide

bank rating