ANNUAL REPORT 2008 - DG Hyp

REFINANCING
The German Pfandbrief – a highly secure refinancing
tool
The German Pfandbrief continued to enjoy its reputation
as a stable and particularly secure refinancing tool during
the year under review. This is based first and foremost
on the statutory provisions of the German Pfandbrief Act,
which provides a high degree of investor protection. There
has not been a single case of a German Pfandbrief failing
during the product’s 200-year history. Against this background,
the Federal Government also felt that it was not
necessary to explicitly include the Pfandbrief in the Financial
Market Stabilisation Act (FMStG) adopted in October
2008.
Even if a Pfandbrief issuer should become insolvent, the
cover assets held by the Pfandbrief bank are exclusively
available to the Pfandbrief creditors for the purposes of
satisfying their claims. From the investors’ perspective, a
crucial aspect is, therefore, the intrinsic value of the cover
assets. To ensure that these assets are of the highest possible
quality, in addition to the provisions of the Pfandbrief
Act, the Mortgage Lending Value Ordinance, for example,
also sets out further conditions for determining the value
of mortgage cover assets. These stringent statutory
requirements and the priority right of recourse to the cover
assets enjoyed by the Pfandbrief creditors provide investors
with a particularly high degree of protection.
Pfandbrief sales impaired by financial market crisis
Due to its high security standards, the German Pfandbrief
was in demand among investors as a financing tool
during the first six months of the reporting year particularly
as the financial market crisis spread to and took hold in
Europe. Pfandbrief sales rose by 25% during the first half
of 2008 compared with the same period of the previous
year. Yet as the financial market crisis intensified the Pfandbrief
market was also hit by distortions, with its ability to
function properly still not being fully restored by the end of
2008.
16 Deutsche Genossenschafts-Hypothekenbank AG | Annual Report 2008
Management Report
The Pfandbrief market is expected to pick up again in
2009. Meanwhile, their experiences of the financial markets
crisis have made investors more aware of potential
problems. As a result, in addition to considering the product
itself, future investors will be increasingly scrutinising
the quality and structure of the cover assets and the risk
management approach of the Pfandbrief bank in question.
DG HYP is in a good position to deal with such scrutiny,
which means that there is a good basic framework in place
for ongoing refinancing.
Good placement opportunities create scope for
sound refinancing base
Despite the difficult market environment, DG HYP was
able to raise funding of € 7.9 billion. In line with the Bank’s
strategy, mortgage bonds in the covered segment totalled
€ 2.5 billion, with public-sector covered bonds totalling
€ 0.6 billion. Unsecured refinancing involved the sale of
bearer bonds and the taking up of promissory note loans
totalling € 4.8 billion. The good placement opportunities
open to DG HYP meant that the Bank enjoyed a solid refinancing
base even when faced with a difficult year on the
capital market. The financial market crisis has only had a
minor impact on professional investors and private customers’
attitude to Pfandbrief products. The volume of
outstanding Pfandbriefe from both cover pools at the end
of the reporting year was € 51 billion.