The covered bonds markets are rapidly expanding in terms of issuance, geographic reach and the launch of new structured alternatives. New issue volumes exceeded €130bn by mid-October 2005 alone.
Covered bonds are now being issued in new juisdictions across emerging Europe. The UK and the Netherlands are developing their own alternatives. The US and Canadian markets are poised for development.
This new book guides you through the legislation, structures and investor opportunities in covered bonds, ensuring you understand these new developments across Europe and North America. Europe's leading covered bonds participants guide you through the trends and future developments in these dynamic markets.
Let the experts explain a well-balanced and detailed view of issues affecting the markets, including:
the impact of Basel II on covered issuance and investment;
the perspective of issuers and investors;
the development of the secondary covered bond market (including the jumbo model and electronic-trading); and
guidance on issues involved in rating covered bonds.
This is the FIRST AND ONLY book to help you:
appreciate the development of the covered bonds market and its participants;
identify the trends in issuance, credit liquidity and pricing issues;
master the legal and regulatory framework surrounding these instruments;
understand the types of issues permitted including:
regulations covering the asset pool,
the treatment of derivatives and
stay up-to-date on the emerging covered bond regimes in the Baltics and Eastern Europe;
gain an extensive knowledge of the structured covered bonds developing in the UK market;
learn about US and Canadian investment in covered bonds.
Table of Contents
Table of Contents
Foreword – Dr. Louis Hagen, General Manager, Association of German Pfandbrief Banks
Introduction to Covered Bonds – Jonathan Golin, Lead Editor
Part I: Key Issues for Issuers and Investors in Covered Bonds
Chapter 1. Uncovering Covered Bonds – Jonathan Golin, Lead Editor
Chapter 2. Basel II and Covered Bonds – Jackie Ineke, Sarah Barton and Michelle Bradley, Morgan Stanley
Chapter 3. The Issuer’s Perspective – Julia Hoggett, DEPFA BANK plc
Chapter 4. The Investor’s Perspective – Ted Lord, Barclays Capital
Chapter 5. The Secondary Covered Bond Market: Jumbo Model and Electronic Trading – Fritz Engelhard, Barclays Capital
Chapter 6. Rating Covered Bonds – Nicholas Lindstrom and Saul Greenberg, Moody’s Investor Services
Part II: Major Covered Bond Markets
Chapter 7. Danish Realkreditobligationer - Stig Tørnes-Hansen, Jens Kristian Kimper and Klaus Kristiansen, Realkredit Danmark
Chapter 8. French Obligations Foncières – Regina Koelsch, UBS
Chapter 12. UK Structured Covered Bonds – Anthony Whittaker and Ralf Grossmann, IXIS; David Balai, HBOS
Part III: Other Markets and New Entrants
Chapter 13. Austria – Bernd Volk, HVB
Chapter 14. Finland – Otmar Schwarz, SEB
Chapter 15. Italy – Florian Hillenbrand, HVB
Chapter 16. Luxembourg – Alexander Heinrich, Fortis
Chapter 17. The Netherlands – Frank Will, RBOS
Chapter 18. Norway – Regina Koelsch, UBS
Chapter 19. Portugal – Frank Will, RBOS
Chapter 20. Sweden – Regina Koelsch, UBS
Chapter 21. Covered Bonds in the Baltics – Otmar Schwarz, SEB
Chapter 22. Covered Bonds in Central and Eastern Europe - Otmar Stöcker, Association of German Pfandbrief Banks
Chapter 23. Crossing the Atlantic – Can Covered Bonds gain penetration in the United States? – Julia Hoggett, DEPFA BANK plc
About the Editor
Jonathan Golin Jonathan Golin is the Director of Independent Company Research, a London-based financial research consultancy, and the author of a number of books and articles on direct investment, credit analysis, and regulatory change. Most recently, Jonathan was on assignment with Rabobank’s London branch assisting with financial institution research and Basel II modelling and compliance. At the time of completing this manuscript, he was also completing the second edition of The Bank Credit Analysis Handbook: A Guide for Analysts, Bankers and Investors (2001), which is due to be published by John Wiley & Sons in mid-2006. Previously, Jonathan was Vice President at Thomson BankWatch in Hong Kong, which until its acquisition by Fitch Ratings was the pre-eminent specialist bank credit rating agency. He is a graduate of the University of California at Berkeley and Harvard Law School. During the 1980s, Jonathan practised corporate law in California and in New York, including an intervening two-year stint in Tokyo as a foreign legal associate. He presently resides in West Sussex with his wife, Suzanna.
About the Contributors
David Balai David Balai is Senior Director, Securitisation at HBOS Treasury Services, with responsibility for HBOS mortgage securitisations, which includes Halifax mortgages through the Permanent Master Trust and the Covered Bond programme. David also had responsibility for the first UK covered bond transaction issued by HBOS in July 2003. Prior to the merger between Bank of Scotland and Halifax he was Senior Director, Securitisation at Bank of Scotland Treasury Services, responsible for the first UK RMBS master trust securitisation through the Mound Master Trust and was involved in the Bank’s CLO securitisation through Melrose.
Michelle Bradley Michelle Bradley is Vice President, in the European Interest Rate Strategy team at Morgan Stanley in London where her primary focus is covered bonds, European supra and agencies. Michelle joined the group in August 2002. Prior to this, she served as financial controller for the European repo, government and agency trading desks. Michelle has a masters degree in Finance from Queen’s University Belfast and B.Comm Int from University College Dublin.
Sarah Barton Sarah Barton is Vice President, European ABS at Morgan Stanley in London. Sarah has been with Morgan Stanley since June 2000 and focuses on consumer-related sectors (RMBS, credit cards) and government securitisations. Sarah has a PhD from St George’s Hospital Medical School, University of London, a masters degree from Birkbeck College, University of London and a degree from the University of Bristol.
José de León José de León works as AVP-analyst at the European Covered Bond franchise at Moody’s Investors Service. José worked on the development of the covered bond methodology and continues to play an integral role in the implementation of this rating approach. He has been at Moody’s for over three years, and during this time has been involved in Structured Covered Bonds, ‘traditional’ Covered Bonds, RMBS and ABS in various jurisdictions across Europe. Before joining Moody’s, he worked in the structuring and trading of securitisations in Germany. José graduated from Universidad Complutense in Madrid with a degree in Business Administration and from the Hochschule for Bankwirtschaft in Frankfurt with a degree in Banking.
Fritz Engelhard Fritz Engelhard is Director, European Fixed Income Strategy at Barclays Capital, which he joined in 2004. Previously he was a European covered bond analyst at HypoVereinsbank, and has played a strategic role in the development of covered bond legislation. He is member of the European Covered Bond Council's working groups on CAD III and rating agency methodologies. Fritz holds a degree in Economics from the University of Munich, Germany. He is fluent in German, English and French.
Ralf Grossmann Dr Ralf Grossmann is Director of Fixed Income/ Credit Research at IXIS in Frankfurt. Ralf is responsible for credit and fixed income research of European Covered Bond markets on the trading as well as on the legal framework side. He is member of the European Covered Bond Council (ECBC) Steering Committee and chairman of the ECBC Technical Working Group. Ralf studied Economics at the Johann Wolfgang Goethe-University in Frankfurt and at the University Sorbonne-Panthéon in Paris. From 1993 to 1997 he worked as an Assistant Professor at the department of Economics at Johann Wolfgang Goethe-University in Frankfurt and as a consultant for quantitative research. Ralf has a doctorate in Empirical Economics.
Alexander Heinrich Alexander Heinrich is Head of European ABS Research at Fortis Investments. He manages a team responsible for the internal credit assessment across structured covered bonds, ABS, MBS, CDO and other structured finance securities. Before joining Fortis Investments in July 2003, he worked at the credit research team of DWS Investments in Frankfurt am Main, responsible inter alia for mortgage banks and structured finance securities. Alexander started his finance career at a hedge fund in Vienna undertaking econometric research, after receiving a degree from the Vienna University of Economics and Business Administration.
Florian Hillenbrand Florian Hillenbrand is an Associate Credit Analyst at HVB Corporates & Markets in Munich, and is a member of the Covered Bonds Research team. Florian is responsible, in particular, for cédulas (Spain), obligations foncières (France), obbligazioni bancarie garantite, covered bonds issued by Cassa Depositi e Prestiti (Italy) and obrigações hipotecárias (Portugal). HVB provides regular and in-depth covered bond research, including the weekly publication Covered Bond and Agency Monitor. Florian holds a masters degree in Economics from Ludwig-Maximilians-Universität in Munich.
Julia Hoggett Julia Hoggett joined DEPFA BANK plc as Head of Capital Markets in August 2004. She is responsible for the team that executes the long-term funding of DEPFA BANK plc, DEPFA ACS BANK and DEPFA Deutsche Pfandbriefbank. Julia also sits as a Director on the Board of DEPFA ACS BANK. Prior to joining DEPFA, Julia was a Vice President on the Sovereign/Supranational and Agency Capital Markets desk at JPMorgan covering Supranational and Agency issuers in Europe, the United States and Asia. Before that, Julia was a member of the Emerging Markets Capital Markets desk at JPMorgan covering Sovereign and Corporate Issuers in Central and Eastern Europe and Africa.
Jackie Ineke Jackie Ineke is Managing Director, European Banks, Global Banks Strategy at Morgan Stanley in London. Jackie has been with Morgan Stanley since May 2000, joining from UBS Warburg, where she spent three years analysing the European banks sector. Prior to these roles, Jackie worked at the Bank of England in the supervisory and foreign exchange divisions. Jackie is responsible for setting strategy for fixed income bank research, globally. Jackie has a masters degree from St. Andrews University and an MES from College d’Europe, Belgium.
Regina Koelsch Regina Koelsch is a Director at UBS in London, and is the Senior Analyst for European Covered Bonds, sub- and supra-sovereigns, European agencies, and public sector banks (including German Landesbanken). She has been with UBS for six years. Five of those were spent in credit research in London. She started in credit research as an analyst on European commercial banks sector before assuming coverage on European covered bonds and public sector entities. In addition, she was a country risk analyst for UBS in Zurich. She holds a masters degree in Economics (lic.oec.HSG) from the University of St. Gallen in Switzerland.
Jens Kristian Kimper Jens Kristian Kimper is Senior Economist in Business Development within Realkredit Danmark. Business Development is part of the Funding & Markets division which is responsible for funding all mortgage activities within Realkredit Danmark by issuance of mortgage bonds. Jens Kristian Kimper joined Realkredit Danmark in 2001. He holds a masters degree in Business Administration from University of Southern Denmark. Prior to his current position, Jens Kristian Kimper held several positions within BG Bank which is part of Danske Bank Group.
Klaus Kristiansen Klaus Kristiansen is Senior Vice President and head of Funding & Markets within Realkredit Danmark. Funding & Markets is responsible for funding all mortgage activities within Realkredit Danmark by issuance of mortgage bonds. Klaus Kristiansen joined Realkredit Danmark in 1996. He holds a masters degree in Economics from University of Copenhagen. Prior to his current position, Klaus Kristiansen headed Product Innovation within Funding & Markets.
Nicholas Lindstrom Nicholas Lindstrom is team leader for the European Covered Bond franchise at Moody’s Investors Service. He implemented the rating approach for this market and co-authored Moody’s Rating Approach to European Covered Bonds. He has been at Moody’s for over ten years, and during this time has been involved in Structured Covered Bonds, ‘traditional’ Covered Bonds, RMBS, CMBS, ABS and esoteric asset types in various jurisdictions across Europe. Before joining the securitisation team, he spent time in the project and corporate finance groups at Moody’s. Nicholas graduated from Cambridge University with a degree in Economics.
Ted Lord Ted Lord is a Managing Director and Head of Covered Bonds at Barclays Capital. Based in Frankfurt, Ted originates benchmark covered bond issues and markets them worldwide to institutional investors. He has worked with a variety of central banks and governments in developing their covered bond legislation. Ted has held senior banking positions in New York, San Francisco, Sydney, Melbourne and Auckland before moving to Frankfurt. Prior to his banking career, Ted worked for the White House, US Congress and the World Bank. Mr. Lord graduated from Harvard.
Otmar Schwarz Otmar Schwarz is Head of Origination at SEB Merchant Banking Frankfurt. Otmar has been in this role since 2003. His main focus is on the covered bond market. Prior to this he was responsible for Debt Securities Sales and Capital Market Sales. Otmar joined SEB from Helaba Frankfurt where he held various sales positions in Fixed Income and Treasury Sales. He started his career at NatWest in London as a graduate trainee in the Corporate Finance division. Otmar holds an masters degree in Political Economy from Essex University.
Otmar Stöcker Dr Otmar Stöcker is Managing Director and Head of Department ‘Pfandbrief Law, International Finance’ in the Association of German Pfandbrief Banks. He is responsible for German Pfandbrief law, cross-border mortgage finance in Europe and the United States, comparison of covered bond legislation and vdp-consultancy to Central and Eastern Europe on covered bonds and mortgage finance. Before joining the Association in May 1989, he received his law education in Würzburg, Geneva, Speyer and Chicago and wrote his thesis on ‘Die Eurohypothek’. He is member of the Legal Working Group of the EMF and of the Technical Working Group of the ECBC.
Stig Tørnes-Hansen Stig Tørnes-Hansen is First Vice President and head of Business Development within Realkredit Danmark. Business Development is part of the Funding & Markets division which is responsible for funding all mortgage activities within Realkredit Danmark by issuance of mortgage bonds. Stig joined Realkredit Danmark in 1996. He holds a masters degree in Economics from University of Copenhagen and he is a CFA chartholder. Besides his position in Realkredit Danmark he also teaches finance at Copenhagen Business School.
Arjan Verbeek Arjan Verbeek is Director FIG securitisation and covered bonds at Barclays Capital. Arjan joined Barclays Capital in September 2003 where his responsibilities include arranging securitisation transactions and covered bond programmes. Previously Arjan worked in the Structured Finance Department of Moody’s Investors Service, where he managed a team responsible for the rating of residential mortgage transactions across Europe and Africa, Dutch asset-backed securitisations and covered bond programmes. Before joining Moody’s in March 2000, Arjan worked in the structured finance team of the Royal Bank of Canada. Arjan started his banking career at Royal Bank of Canada after obtaining a masters degree in Econometrics from the University of Tilburg in The Netherlands.
Bernd Volk Bernd Volk has eight years of investment analysis experience both on the buy side and the sell side. In 1998, worked as a research analyst for Pfandbriefe at DZ Bank. From 2000–2004, he worked at Deka Investments, the second largest fund manager in Germany, as a senior credit analyst for financials and corporate credits. Since 2005, Bernd has been working at HVB Group and is responsible for Covered Bonds and Financials Credit Research. Bernd graduated from the University of Freiburg with degrees in Law and Economics. He served as assistant professor for two and a half years before he started working at DZ Bank at the Institute of Evolutionary Economics at the University of Freiburg. He is a member of the Hayekian circle of liberal economists, participates in AMTE/ECB Exchange of Views and is a member of different ECBC working groups. Bernd is a CFA charterholder.
Anthony Whittaker Anthony Whittaker is Head of UK Fixed Income Sales and Origination at IXIS CIB, where he specialises in covered bonds origination, and in bespoke structured credit solutions. He joined IXIS in 2003. Previously Anthony was head of the UK Structured Credit Sales desk at Dresdner Kleinwort Wasserstein, which he joined in 1998. Prior to this, Anthony worked at SBC Warburg in Corporate Finance and in Fixed Income. He holds a degree in Economics from Sydney University, a degree in Law from Sydney University, a masters degree in Law from Oxford University, and is a qualified Solicitor.
Frank Will Frank Will is the Senior Strategist for Frequent Borrowers at RBS Financial Markets. He focuses on the analysis of the European covered bond market and is a specialist for the European Supras & Agencies in euro, US dollar and Sterling. Before joining RBS Financial Markets team in May 2005 he was a director with WestLB Credit Research in London for five years. As WestLB’s Senior Bank Analyst he covered the major European and US banks as well as the fast-growing European Covered Bond market. Frank graduated in Business Administration and has a PhD in Economics from the University of Düsseldorf, Germany.
Learn from the following specialists:
* Dr. Louis Hagen, General Manager, Association of German Pfandbrief Banks * Jonathan Golin * Jackie Ineke, Sarah Barton and Michelle Bradley, Morgan Stanley * Julia Hoggett, DEPFA BANK plc * Ted Lord, Barclays Capital * Fritz Engelhard, Barclays Capital * Nicholas Lindstrom and Saul Greenberg, Moody's Investor Services * Stig Tørnes-Hansen, Jens Kristian Kimper and Klaus Kristiansen, Realkredit Danmark * Regina Koelsch, UBS * Bernd Volk, HVB * Arjan Verbeek, Barclays Capital * Florian Hillenbrand, HVB * Anthony Whittaker and Ralf Grossmann, IXIS * David Balai, HBOS * Otmar Schwarz, SEB * Alexander Heinrich, Fortis * Frank Will, RBOS * Otmar Stöcker, Association of German Pfandbrief Banks