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21 September 2010
• We write our 2010 Handbook against a backdrop of increased interest in European ABS & CB Research
the covered bond asset class; whether that be from new issuers looking Gareth Davies, CFA
AC
to change their funding mix, new investors seeking to broaden their (44-20) 7325-7283
portfolios, or from lawmakers and regulators looking to provide their gareth.davies@jpmorgan.com
originators with another route to market. J.P. Morgan Securities Ltd.
AC
Flavio Marco Rusconi
• We split the Handbook into two discreet sections, first providing an (44-20) 7777-4461
overview of some of the key elements of the covered bond market as a flaviomarco.rusconi@jpmorgan.com
whole, followed by the second section which looks jurisdiction-by- J.P. Morgan Securities Ltd.
jurisdiction at the individual issuers that have accessed the international
Advait Joshi
capital markets. (91-22) 6157 3253
advait.s.joshi@jpmorgan.com
• We tailor this publication towards investors who may be newer to the
J.P. Morgan India Private Limited
asset class, setting out first to define the product, and then in recognition
of the increasing volume of enquiries we receive about CB from
traditional credit investors, to contextualise covered bonds in relation to
securitisation.
Foreword
Covered bonds take centre stage
We write our 2010 Handbook against a backdrop of increased interest in the covered
bond asset class; whether that be from new issuers looking to change their funding
mix, new investors seeking to broaden their portfolios, or from lawmakers and
regulators looking to provide their originators with another route to market.
We split the Handbook into two discrete sections, first providing an overview of
some of the key elements of the covered bond market as a whole, followed by the
second section which looks jurisdiction-by-jurisdiction at the individual issuers that
have accessed the international capital markets.
• We tailor this publication towards investors who may be newer to the asset class,
setting out first to define the product, and then in recognition of the increasing
volume of enquiries we receive about CB from traditional credit investors, to
contextualise covered bonds in relation to securitisation.
Both regulatory and market • We note that the future for the product looks bright, based on both regulatory
forces look set to support the initiatives which look to encourage the development of covered bond markets on
growing importance of covered a global basis, and market forces such as the continued dislocation in many of the
bonds as a funding source main securitisation markets.
• We set out a view that the product will morph over time along a number of
metrics. First, it will become more relevant as a bank funding tool across more
jurisdictions. Secondly, we expect the definition of covered bonds to be stretched
We expect the product to change to accommodate the respective needs of this expanded issuance universe. Finally,
with the times
with increased depth and breadth of supply, we expect the investor base to change
alongside the product, moving more firmly into the credit universe, with
derivative consequences on investor reporting and disclosure.
• We suggest that the optimal model for analysis of the product is based on a joint-
We think bank plus collateral venture between the Secured Asset analyst (whether that be the securitisation
analysis is key to investment
analyst or a designated covered bond analyst), and the Financials analyst–
success…
viewing the covered bond product in a framework of ‘senior (unsecured) bank
debt with a higher recovery’ (although we recognise that disclosure has some way
to go before true collateral credit analysis can be undertaken).
With this publication, we set out to assist investors in determining their approach to
what we believe will be an increasingly important asset class. We hope this
Handbook proves useful in this task, and would naturally welcome any feedback on
its form or content.
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Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
Table of Contents
Foreword ...................................................................................2
Covered Bonds: a “bluffer’s guide”........................................6
Product overview......................................................................7
Market overview .....................................................................14
Regulatory backdrop..............................................................22
Rating Agencies .....................................................................27
Austrian Covered Bonds .......................................................36
Canadian Covered Bonds......................................................42
Danish Covered Bonds ..........................................................50
Dutch Covered Bonds............................................................60
Finnish Covered Bonds .........................................................70
French Covered Bonds ..........................................................76
German Covered Bonds ........................................................94
Greek Covered Bonds..........................................................126
Hungarian Covered Bonds ..................................................130
Irish Covered Bonds ............................................................136
Italian Covered Bonds..........................................................144
Korean Covered Bonds........................................................154
Luxembourgish Covered Bonds .........................................160
New Zealand Covered Bonds ..............................................168
Norwegian Covered Bonds..................................................172
Portuguese Covered Bonds ................................................178
Spanish Covered Bonds ......................................................186
Swedish Covered Bonds .....................................................218
Swiss Covered Bonds..........................................................228
UK Covered Bonds...............................................................232
US Covered Bonds ...............................................................244
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Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
What is a covered bond? Covered bonds are secured, senior, bullet instruments of an issuer (typically a
bank), that provide investors with recourse to both the issuing institution and the
underlying, revolving collateral pool.
How do CBs differ from RMBS? The main differences between RMBS and covered bonds can be summarised as:
a) amortisation: RMBS generally have a pass-through structure based on the
repayment of collateral, while CBs generally have a hard or soft bullet profile; b)
credit enhancement: covered bonds have much simpler structures than ABS and
rely on over-collateralisation as a form of credit enhancement. This can vary
according to the usage of the programme by the issuer but a minimum OC has to
be maintained; this is monitored through asset and interest coverage tests typically
monitored by third parties, which ensure that the asset pool and its proceeds are
enough to match the issuer's CB liabilities. In RMBS, credit enhancement is given
by subordination and structural features and, except for certain structures, it
generally increases as the deal de-levers; c) unlike securitisation, where investors
benefit from recourse to the collateral pool only, CB investors benefit from dual
recourse to both the issuer and the cover pool.
What types of CB structures exist? There are three broad CB structures: a) CB can be issued off the balance sheet of
the originator, with the collateral pool remaining with the originator, albeit ring-
fenced for covered bond investors (for example in Austria and Germany); b) a
financial institution establishes a limited function subsidiary, which in turn issues
covered bonds (for example France’s OF, Finland); c) in countries without specific
CB legislation, CB are typically unsecured obligations of the issuer, with funds
raised from the issuance of CB lent to a guarantor (typically a limited liability SPV),
which uses the loan to acquire collateral from the originator. This entity then acts as
guarantor to the unsecured bonds, agreeing to repay bondholders on insolvency of
the issuer (for example UK, Canada, Netherlands, Italy).
What type of collateral is accepted? CB legislation (or transactions docs when no CB legislation exists) typically define
the list of collateral eligible to be included in the cover pool. The main types of
assets used as primary collateral are public sector exposures, residential and
commercial mortgages and shipping loans. In some cases, a max LTV is specified.
The EC’s CRD also allows senior MBS (both residential and commercial) issued by
securitisation entities, where at least 90% of the underlying mortgages comply with
the above rules for unsecured mortgage exposures. The MBS must be rated Credit
Quality Step 1, and can only form 10% of the collateral pool (from January 2011,
20% currently). Substitute assets up to a given threshold (typically 10-15%) can
also be included in cover pools.
What type of risk are investors exposed to? Investors are generally exposed to issuer's risk until its default, after which they are
exposed to the credit risk of the cover pool. If there are CBs outstanding after the
cover pool has been extinguished, CB investors will have a residual claim to the
bankruptcy estate of the issuer which will rank pari passu with that of senior
unsecured bondholders
Do cover bonds accelerate upon the issuer’s default? No, CBs do not necessarily accelerate on insolvency of the issuing institution. Only
the failure of the programme to make payments as and when due results in the
acceleration of the obligations.
Which jurisdictions are the largest issuers? The largest issuer, by outstanding amount, is Germany, followed by Spain,
Denmark, France and the UK. As CBs gain popularity with regulators, issuers and
investors, more jurisdictions are starting to push for dedicated covered bond
legislation (for example Canada and the US).
Source: J.P. Morgan Covered Bond Research
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Gareth Davies, CFA Europe Credit Research
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Product overview
We set out below to define the core characteristics of the covered bond product,
recognising that by making some generic statements, we ignore some of the multiple
nuances that issuance from hundreds of issuers and tens of jurisdictions necessarily
implies. For more detail on individual jurisdictions, please see the respective country
section towards the back of this publication.
Structural Form
Covered bonds are typically thought of as bonds issued from the balance sheet of an
originating bank, with the revolving collateral pool remaining with the originator,
albeit ringfenced for covered bond investors in case of institutional insolvency. This
model is deployed in a number of significant issuing jurisdictions (for example,
Austria, Germany, Spain and Sweden); however, there are also two other forms of
covered bond structures common in a number of jurisdictions.
Three broad structural forms The most simplistic alternate structure can be accurately described by its name:
used in covered bond issuance ‘Specialist Banking Principle’, whereby a ‘full service’ financial institution
establishes a limited function subsidiary, which in turn issues the covered bonds,
backed by assets transferred from the originator. This form is typical in Ireland,
Finland (at least currently) and France (for Obligations Fonciere).
The third variation on issuance form tends to have been adopted by the Anglo-Saxon
jurisdictions (UK, Canada, New Zealand etc) along with Italy and the Netherlands.
This structure was typically adopted by countries that did not benefit from specific
covered bond legislation, but rather adopted securitisation techniques to create a
covered bond investment (Figure 1).
Bank ABC
Trustee
Issuer
CB Proceeds
CB Investors
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Under this approach, covered bonds are actually unsecured obligations of the issuer.
Funds raised from the issuance of covered bonds are then on-lent to a guarantor
entity (typically a limited liability SPV), which uses the loan to acquire collateral
from the originator. This entity then acts as guarantor to the unsecured bonds,
agreeing to repay bondholders on insolvency of the issuer.
Market participants often refer to 'legislative' and 'structured' covered bond markets,
distinguishing between the first two forms described above and the latter (although
these terms can be something of a misnomer since many 'structured' markets now
also have legislation).
Covered bonds remain the obligation of the issuing institution prior to its default
similar to any unsecured obligation and irrespective of the collateral performance in
the cover pool (non-payment of a covered bond constitutes a default of the
Only after issuer default does
institution). Only after an institution’s default does the primary source of programme
the primary source of investor
cashflows become the cover payments switch to the cover pool itself. Subsequently, should the pool prove
pool insufficient to repay all outstanding obligations under the programme, covered bond
investors will have further recourse to the bankruptcy estate of the issuer. These
residual claims would rank pari passu with those of other senior (unsecured)
bondholders.
Collateral
Covered bond legislation typically defines the list of collateral eligible to be included
in a cover pool. The main types of assets used as primary collateral (substitute assets
are also eligible in cover pools up to a pre-defined threshold, typically 10-15%) are
Most common form of collateral
public sector exposures, residential and commercial mortgages and shipping loans.
used remains mortgages, As the product expands its geographic reach beyond its traditional home in Europe,
followed by public sector assets the list of eligible (primary) assets looks set to expand. Legislative proposals
currently winding their way through the US Congress look set to expand the
definition of eligible assets to include student loans, credit cards, auto loans and
leases and SME loans. Kookmin Bank of Korea has also issued a covered bond
backed by both mortgage and credit card collateral.
In the EU, the primary source of guidance is provided in the Capital Requirement
Directive1 (CRD), which sets out the following:
1
http://register.consilium.europa.eu/pdf/en/10/st11/st11527.en10.pdf
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• Residential (80% LTV limit) and commercial mortgage loans (60% LTV limit, or
70% if an issuer provides a minimum of 10% over-collateralisation)
• Senior MBS (both residential and commercial) issued by securitisation entities,
where at least 90% of the underlying mortgages comply with the above rules for
unsecured mortgage exposures. The MBS must be rated Credit Quality Step 1,
and can only form 10% of the collateral pool from January 2011. For the 10%
limit to be waived, the MBS must be self-originated and the originator must
retain the first loss piece
• Loans secured by ships (60% LTV limit)
Derivatives are also permitted in certain jurisdictions to hedge specific risks
including interest and foreign exchange exposures.
Credit risk of the cover pool
remains with the issuer until Cover pools backing covered bonds are dynamic in nature, with investors essentially
default, upon which it transfers assuming the credit risk of the cover pool only upon issuer default.
to the investor
Insolvency
Covered bonds do not necessarily accelerate on insolvency of the issuing institution.
Only on the failure of the programme to make payments as and when due results in
the acceleration of the obligations.
Definitions
The ECBC2 sets out a definition of a covered bond as follows:
‘Covered bonds are debt instruments secured by a cover pool of mortgage loans
(property as collateral) or public-sector debt to which investors have a preferential
claim in the event of default.’
More fully, the BIS sets out a definition of securitisation in its ‘International
Convergence of Capital Markets and Capital Standards’3 document:
As we can see from the above BIS definition, covered bonds fail to meet this test on
a number of fronts. First, as we have already noted, cashflows from the underlying
pool are not necessarily used to service the covered bonds, but rather the general
2
http://ecbc.hypo.org/Objects/9/Files/ECBC%20Fact%20Book%202010.pdf
3
http://www.bis.org/publ/bcbs128.pdf?noframes=1
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Gareth Davies, CFA Europe Credit Research
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resources of the issuing institution are utilised. Second, with the exception of Danish
junior covered bonds, there are no stratified risk positions or tranches reflecting
different credit risk profiles in covered bonds. Finally, payments to investors do not
depend on the performance of the underlying exposures while the issuing entity
remains solvent. The credit risk of the cover pool is not transferred until issuer
insolvency.
Amortisation
Repayment profiles differ
European securitisation bonds typically amortise over time through the repayment of
between the two secured the underlying exposures (a notable exception to this are UK credit card and
products mortgage master trusts which offer investors soft-bullet bonds). Distributed covered
bonds typically utilise a hard or soft-bullet redemption profile (there are some pass-
through covered bonds, but these have typically been retained by originators for use
as central bank repo collateral).
It should be noted here that a soft-bullet covered bond does not offer the issuer the
option of extending the maturity of the outstanding notes. Rather, the soft-bullet
extension can only be utilised following a failure to pay event (i.e. issuer insolvency),
allowing the administrator an extended period (typically 12 months) to achieve
sufficient liquidity to repay the due payment.
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date following an Issuer Event of Default, the Amortisation Test Aggregate Loan
Amount will at least equal the aggregate outstanding amount of the CB.
Figure 2: Covered Bond outstanding, €mm Figure 3: Covered Bond issuance, €mm
2,500,000 Germany Spain Denmark France UK Other 700,000 Mortgage Public sector Ship Mix ed assets
600,000
2,000,000
500,000
1,500,000 400,000
1,000,000 300,000
200,000
500,000
100,000
0 0
2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
According to the ECBC, at the end of 2009 outstanding covered bonds totalled
€2.4trn. The top five jurisdictions (Germany, Spain, Denmark, France and the UK)
account for the 80% of the total. The smaller jurisdictions, however, are experiencing
some of the highest growth rates, with outstanding volumes in Italy, Greece, Austria,
Canada and the Netherlands, amongst others, growing at double digit rates.
Mortgage covered bonds remain the largest bond type, accounting for two thirds of
the outstanding volumes, while only one fifth of outstanding bonds are of floating
rate nature.
The majority of covered bonds (88%) are denominated in the issuer’s domestic
currency, according to the ECBC. The euro remains the dominant currency (70% of
outstanding bonds) and it is gaining ground in jurisdictions such as the UK and
Norway.
Flow
Total 2009 issuance of covered bonds amounted to €529bn (ECBC), down from
€651bn in 2008. In the first eight months of this year, covered bonds issued amount
to €218bn, compared to €182bn at the same point in time last year, according to
Dealogic data.
Denmark proved to be the most prolific issuer in 2009, accounting for roughly a
quarter of total issuance, although most its issuance was DKK-denominated and sold
domestically. The largest €-denominated issuance came from Germany, at €110bn.
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Gareth Davies, CFA Europe Credit Research
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The share of mortgage covered bonds has increased over time, from 51% in 2003 to
81% in 2009, at the expense of public sector collateral (from 46% of issued volumes
in 2003 to 16% in 2009). Jumbo issuance rose both in absolute terms (up 20% to
€257bn) and as a share of total issuance, accounting for 49% of bonds issued in
2009, up from a third in 2008.
Bank funding
Covered bonds form one element of a bank’s potential funding sources alongside
deposits, unsecured bonds (both senior and subordinate), equity and securitisations.
After the stresses afflicting the banking sector over the immediate past subside, we
see both regulatory and market developments supporting the role of covered bonds.
Regulatory moves (further discussed in a later section) naturally change the emphasis
placed on each of the available funding alternatives. A recent publication from our
Financials colleagues (see ‘The Ins and Outs of Bail-Ins: Regime Change for Bank
Senior Debt?, 6th September 2010) explains that the recent regulatory discussions on
bank bail-ins marks a significant shift in terms of the perceived risk profile of senior
unsecured bonds, which is likely to result in changes in the funding patterns of
issuers. Explicitly, they note:
As such, covered bonds would seem an increasingly optimal solution and should
benefit on a relative basis versus senior debt in terms of lower risk. First, given that
covered bonds are still linked to the risk profile of the issuer, they will benefit from
stronger sector regulation, which should reduce the possibility of distress for the
issuer. However, the loss given distress will be lower for covered bonds due to the
collateral element than for senior, implying that it is the asset class that gets the best
of both worlds. This more favourable positioning of the covered bonds should imply
lower funding costs relative to senior and should stimulate a greater reliance on this
as a funding tool.”
Furthermore, we note that market forces are also promoting the role of covered bonds
as a funding source. With much of the European securitisation markets remaining
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Gareth Davies, CFA Europe Credit Research
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closed to issuers, covered bonds have increasingly been used to divert potential
secured bond supply. As long as these markets remains shut to originators, we expect
to see covered bonds take an increasingly prominent role in the funding of the
region's banks.
Going global
As we have already noted, the ‘roll out’ of covered bonds across ever-more
jurisdictions is one of the most obvious developments since our last Handbook
(2008). Canada, Korea and New Zealand have all accepted covered bonds as a
feasible funding alternative in this period, often mimicking the majority of features
seen in the product traditionally distributed in Europe. While this internationalisation
has resulted to date in more potential for investor diversification, rather than product
redefinition, we believe the nascent moves to establish a U.S. covered bond market
could have the opposite effect.
United States
America’s adoption of covered While legislative moves in the US to establish a legal framework for covered bonds
bonds is likely to redefine the continue to grind their way through Congress, the initiative throws up one
product particularly interesting question in our view. Depending on the underlying premise
for the establishment of a US covered bond regime, we believe the impact of its
adoption on the global covered bond market could be very different.
If the purpose of the regime is to create an additional funding source for US financial
institutions in the international capital markets (essentially selling US covered bonds
to the existing covered bond investor base) we believe the main impact will be on
additional supply, rather than product redefinition. In short, we believe that the
existing, predominantly European investor base will require any new US covered
bond product to resemble the features of the existing European bonds.
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Gareth Davies, CFA Europe Credit Research
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Market overview
Primary market overview
Issuance patterns
Covered bond issuance has been relatively strong this year, with €204bn issued so far
in 2010, despite the sovereign crisis and the end of the ECB purchase programme
(between July 2009 and June 2010, the ECB bought €89bn of covered bonds, of
which €17bn was on the primary market).
According to Dealogic figures, the largest contributors are Germany (€51bn) and
France (€31bn). Despite being one of the countries at the centre of investor concerns
during the sovereign crisis and the significant changes taking place within its banking
system, Spain has so far issued €23bn; in fact, after a two-month lull in May and
June, Spanish banks returned to the market in July, issuing in excess of €8bn during
the traditionally quiet summer months. This is despite the significant risk premiums
demanded by investors to buy their bonds.
Positively for the market, jurisdictions that have recently started issuing covered
bonds have continued to show commitment to the asset class. Canadian banks in
particular have been tapping the market frequently, issuing $-denominated wrapped
(underlying mortgage-backed) paper, which investors perceive as ‘cheap’ Canada
risk. This has also been driving up $-denominated issuance, at €14bn already–almost
6 times 2009 full year volumes.
2010 has also seen some progress in broadening the universe of covered bond
jurisdictions. Bank of New Zealand launched the first Kiwi covered bond, as did
Korea Housing Finance Corporation (first pure play resi covered bond), while
announcing its intention to issue $2bn of covered bonds annually starting from 2011.
Furthermore, the number of covered bond issuers seems bound to expand further in
the near-term, as several jurisdictions, both new (such as Australia) and “old” (such
as Canada and the US, amongst others) are considering the value of adopting
dedicated covered bond legislation.
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The widening of covered bond spreads during the sovereign crisis has not been
uniform, as issuers from jurisdictions that were perceived to have a weaker sovereign
quality widened more than those from more solid jurisdictions (Figure 4 and
Figure 5). This is because banks and the banking system of a country in general often
have strong links with the country’s sovereign quality, both because this is seen as
the ultimate provider of support to banks in difficult times but also because banks are
large holders of sovereign debt. Therefore, it is not surprising that investors lost
relatively more appetite for bonds from less stable sovereigns. These dynamics are
also driven by the top-down approach adopted by the majority of traditional covered
bond investors, whereby the analysis begins with a view on the strength of the
covered bond framework and of the sovereign creditworthiness, before trickling
down to the issuer and, less frequently, to the cover pool.
Figure 4: UK Covered Bond and Sovereign CDS spreads Figure 5: Spanish, Covered Bond and Sovereign CDS spreads
350 UK CB 3 - 5 Years UK 5y rs Sov CDS 300 Spain CB 3 - 5 Yr Spain 5y rs Sov CDS
300 250
250
200
200
150
150
100
100
50 50
0 0
Oct-08
Oct-09
Oct-08
Oct-09
Jan-08
Apr-08
Jul-08
Jan-09
Apr-09
Jul-09
Jan-10
Apr-10
Jul-10
Jan-08
Apr-08
Jul-08
Jan-09
Apr-09
Jul-09
Jan-10
Apr-10
Jul-10
Source: Bloomberg, J.P. Morgan Covered Bond Research Source: Bloomberg, J.P. Morgan Covered Bond Research
• Liquidity: covered bonds, even after the end of market making requirements,
should generally be considered a more liquid asset class than RMBS (although
we would argue that UK and Dutch RMBS are of a similar liquidity to their
covered bond equivalents, in other countries such as Spain, we see covereds
clearly having a liquidity edge over RMBS). While it is true that covered bond
markets, both primary and secondary, remained at least partially open throughout
the darkest times of the past three years, liquidity can disappear quicker than
investors can react, as seen in Q4 2008-Q1 2009 and to a lesser extent during the
recent sovereign turmoil, pushing spreads to levels that are many times multiples
of historical levels. Liquidity in the covered bond universe is in large part driven
by the strength of the legal framework adopted in each jurisdiction and by other
macro factors such as its sovereign creditworthiness and the health of its banking
system.
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• Risk: another factor contributing to the greater liquidity and tighter pricing of
covered bonds is the perceived safety of the instrument and the systematic role
played by the product in bank funding in a number of jurisdictions, thanks to the
full recourse to both the cover pool and the lender. But is such perception
justified? One could argue that there is a strong correlation between collateral
quality and strength of the lending bank; in fact, weak mortgage assets are one of
the causes that have led to a number of banks requiring the support of
governments or central banks. The case is even stronger for monoline banking
institutions, where the low quality of the collateral effectively weakens both the
value of recourse to the cover pool and to the lender itself.
Investor overview
The current investor base
Traditionally invested in by rates As of today, the majority of investors continue to be based in Europe, with a
investors… significant proportion of accounts in the traditional markets of France and Germany.
The product is predominantly bought by bank (both private sector and central banks)
and real money investors (particularly insurance and pension funds).
Overwhelmingly these assets are sold into the Rates desks of these institutions, rather
than Credit.
We expect this shift in make-up of the investor base to lead to a shift in analysis
model deployed, and therefore to also necessitate a shift in the disclosure provided by
covered bond programmes.
Rates or credit?
As noted above, the existing investor base overwhelmingly considers covered bonds
as a rates product. Taking a quality spectrum, most investors see Covered Bonds
sitting in the following position: Sovereigns-Agencies-Covered Bonds (i.e. it can be
considered the ‘weakest’ rates product).
We see covered bonds as the We however consider this somewhat inappropriate, preferring to think of Covered
strongest credit product Bonds as one of the strongest Credit products (i.e. Covered Bonds-Securitisation-
Senior unsecured, etc.). While this ultimately looks like semantics, we believe the
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Gareth Davies, CFA Europe Credit Research
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Top down often overlooks the This approach essentially deals with the probability of default (PD) element of the
value of the collateral pool expected loss calculation, which offers only a cursory evaluation of the other element
to be considered, loss given default (LGD). In our view, this is a clear limitation of
the approach.
Bottom up
An alternative approach is similar to that utilised by securitisation analysts, where
you start at the collateral pool and work your way upwards. This approach also has
its limitations, not least that the credit risk of the cover pool is not assumed by the
investor until issuer insolvency, but more practically, disclosure around cover pools
is often woefully inadequate to run any meaningful collateral analysis. This approach
essentially deals only with the LGD element of the loss calculation.
Bottom up overlooks the In our view, this is a clear limitation of this approach. While we expect disclosure to
potential for regulatory improve over time as more investors insist on additional transparency, we suggest
intervention
investors use a hybrid approach to covered bond analysis.
Hybrid approach
We therefore suggest an approach which combines the best elements of both these
approaches. This does not necessarily result in what can be considered an entirely
‘clear-cut’ methodology to the identification of programme risk, but it does allow
investors to utilise a mosaic approach, essentially equating covered bonds to ‘senior
unsecured risk with higher recoveries due to the collateral pool’.
We think of covered bonds as In our suggested approach, we start with a top down overview of the jurisdiction (in
having the same PD as senior terms of legislative overview and an assessment on the willingness and ability of the
bank debt, but with lower LGDs
state to support an issuing bank) and then an analysis of the bank itself (outsourced to
the Financials credit analyst). In addition to this however, we then encourage
investors to take a ‘securitisation’ approach to looking at the collateral pool–building
up a picture of the quality of the collateral at the investor's disposal should the
institution become insolvent (we recognise that this may be easier said than done in
practice based on the current level of disclosure in investor reports, but initiatives by
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central banks and other regulators to nudge the market towards additional disclosure,
plus the potential influx of ‘more demanding' Credit investors should move the
market in the correct direction).
Jurisdiction tiering
While there is no definitive list of characteristics used to classify the perceived
importance of the various covered bond issuance jurisdictions (see later section, for
example, for S&P’s explicit classification), investors have traditionally tended to
approach the market from this perspective. We set out our view below:
These bonds tend to price the tightest in the new issue market. Individual issuer
credit risk is perceived to be of less importance in these markets owing to the
systemic importance of the produce to the respective jurisdiction.
Within this segment we include Spain, UK and the Netherlands. These countries
offer investors spread pick-up to the ‘inner core’ jurisdictions.
Peripheral jurisdictions
Jurisdictions recently joining or about to join the covered bond community, including
Korea, New Zealand and the US.
Overview of Frameworks
Below we produce a table summarising and comparing the different frameworks of
the main issuance jurisdictions. Overviews for the other issuing countries are set out
at the start of each segment at the back of this publication.
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Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
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(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
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(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
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(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
Regulatory backdrop
Regulations do not just affect
Aside from the legislative or regulatory frameworks defining the shape and form of
originators… the covered bond issuance markets in the various jurisdictions, there are also a
number of regulatory initiatives which affect covered bond investors. We set out
below an overview of the main investor-focused regulations.
Basel II
Basel II does not specifically deal with the treatment of covered bond holdings,
rather treating the secured bonds as equivalent to their unsecured cousins. The
Capital Requirements Directive (CRD) which implements Basel II in Europe does
however set out beneficial capital charges for covered bond portfolios held by bank
investors. Bonds will benefit under the CRD if they comply with the following
criteria:
For banks under the Internal Ratings Based (IRB) Approach, they must use the same
formula as for institution and corporate riskweights. The inputs are a PD based on the
issuing bank’s rating (subject to a floor of 3bp), a reduced LGD of 12.5% (or even
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Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
11.25%), with a fixed maturity (5 years) for Foundation banks, and the maturity of
the position itself for Advanced banks.
Under the initial definition of high quality liquid assets of the Basel Committee,
covered bonds fell in the wider definition and were assigned a haircut of 20% for
bonds rated AA and above and 40% for those rated A- (A minus) and above. The net
stable funding definition assigned a required stable funding factor of 20% for
covered bonds rated AA and above and a higher haircut for bonds rated A- (A minus)
and above.
Such proposals received significant pushback from market participants and have led
the Committee to partially modify its definition of liquid assets. Under the new
framework, covered bonds fall within the Level 2 bucket, which can make up as
much as 40% of total liquid assets, and will be subject to a haircut of 15% if rated
AA- (double-A minus) and above. Level 2 assets will also include other government
and public debt securities with 20% risk weight and high quality corporate debt rated
at least AA- (double A minus). Requirements for covered bonds to qualify as Level 2
assets are:
• Not issued by the bank for which the ratio is being calculated
• The bonds must trade in a large, deep and active markets and have not
experienced a bid-ask spread of over 50bp in the last 10 years
No changes have been made to the stable funding requirements. Although the
Committee announced that revised criteria will be published later this year and
postponed the introduction of a stable funding ratio until 2018, until which there will
be an observation period that will leave enough time to address any issues with the
new framework.
UCITS
The minimum requirements for UCITS compliant covered bonds are set out in
Article 22(4) of the UCITS Directive (Article 22(4) will become Article 52(4) in July
2011). To be eligible:
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Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
• Investment funds (UCITS) can invest up to 25% (instead of 5%) of their assets in
the covered bonds of a single issuer
• Insurance companies can invest up to 40% (instead of 5%) of their assets in
covered bonds of a single issuer
Once deemed eligible, the security is allocated to one of five liquidity categories (see
Table 4) and assigned a haircut according to its maturity and type of coupon.
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Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
The haircuts to which different types of collateral are subject have been revised by
the ECB in August 2010 and the new framework will become effective from 1st
January 2011. The main changes affecting covered bonds are the increased haircuts
for longer dated (>3yrs) non-jumbo covered bonds and the extension of the
additional theoretical valuation 5% haircut to include all types of covered bonds.
Table 5: Old and new (changes in bold) valuation haircuts by category and maturity
Category I Category II Category III Category IV Category V
Maturity Fixed Zero coupon Fixed Zero coupon Fixed Zero coupon Fixed Zero coupon Fixed/Zero
coupon coupon coupon coupon coupon
0-1y 0.5 0.5 1 1 1.5 1.5 6.5 6.5 12 / 16.0
1-3y 1.5 1.5 2.5 2.5 3 3 8 / 8.5 8
3-5y 2.5 3 3.5 4 4.5 / 5.0 5 9.5 / 11.0 10
5-7y 3 3.5 4.5 5 5.5 / 6.5 6 10.5 / 12.5 11
7-10y 4 4.5 5.5 6.5 6.5 / 8.5 8 11.5 / 14.0 13
>10y 5.5 8.5 7.5 12 9 / 11.0 15 14 / 17.0 20
Source: ECB
BoE treatment
The Bank of England has a similar facility available, the Discount Window Facility,
under which eligible banks and building societies are required to pay cash ratio
deposits (CRDs) to participate and can borrow gilts against a wide range of collateral
in return for a fee that varies according to collateral type and borrowing size. The
term of funding is generally 30 days but can be extended to 364 days for an
additional 25bp fee.
Margin ratios are applied to eligible collateral, with additional haircuts for securities
with no observable market price, own name ABS or covered bonds, downgraded
ABS or covered bonds and non-sterling denominated securities.
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Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
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Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
Rating Agencies
All agencies now use the
We set out below an overview of the ratings approaches adopted by the three
unsecured rating of the issuer as agencies with respect to covered bonds. All three agencies now link the rating of
a rating‘s floor for its covered covered bonds to the rating of the issuing bank, providing further scope for uplift
bonds from the issuer rating based on both collateral and cover pool cashflow
characteristics.
Fitch Ratings
The following is a synopsis of the methodology used by Fitch Ratings to rate covered
bonds. For a complete overview of the Agency’s approach, please see Fitch Rating’s
‘Covered Bond Rating Criteria', published 16th August 2010.
Fitch Ratings uses a three stage process in arriving at the ratings it gives to covered
bonds. First, it combines the Issuer Default Rating (IDR) with the programme’s
Discontinuity Factor (D-Factor) to calculate a maximum rating on a probability of
default (PD) basis. Second, it tests the programme’s overcollateralisation, and finally
calculates a recovery uplift.
• Asset Segregation looks at the effective segregation of the cover pool from other
creditors, the remoteness of over-collateralisation from creditor claims and also
considers clawback, co-mingling and set-off risk.
• Liquidity Gaps analysis is two-fold, making a macro assessment of market
liquidity and timing for potential portfolio sales, while also considering liquidity
gaps at the programme level with the effectiveness of asset-liability mechanisms
(i.e. pass-through structures, extendable bond maturities, liquidity guidelines,
marching of assets/substitute assets).
• Alternative Management looks to the process governing the appointment of a
substitute manager, along with the time taken to affect such a process.
Furthermore, the Agency considers the availability of suitable replacements in a
given market, along with the potential for conflicts of interest.
• Oversight considers the importance of covered bonds to a particular market, and
the regulatory involvement in monitoring and supervising covered bonds.
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gareth.davies@jpmorgan.com
Stage 2 involves assessing the highest level of stress that the over-collateralisation in
the cover pool can withstand while still maintaining timely interest and principal
payments in a wind-down scenario. The pool is assessed under economic downturn
conditions, and compares the stressed cashflows from the cover pool to the payments
required to be made on the covered bonds themselves. Over-collateralisation is key
to the rating since it is the only form of credit-enhancement available to covered
bond investors. Fitch gives credit for over-collateralisation in the following order:
contractual commitments, if legally binding and enforceable; non-contractual public
statements and covenants; and issuer’s internal guidelines. For issuers without any of
the above:
• For institutions rated at least F2, the lowest level of over-collateralisation during
the last twelve months
• For institutions rated F3 or below, the minimum level of over-collateralisation
required by legislation
To achieve this analysis, the Agency runs scenario analysis from the highest
achievable rating under Stage 1, down to the IDR. If over-collateralisation is
insufficient to avoid a payment default on the covered bonds in the first scenario at
the cap rating, the test is re-run again at each rating down to the IDR. The first rating
where over-collateralisation is sufficient to support the payments required under the
programme, is the rating under Stage 2.
Stage 3 is to recognise the positive impact of higher recoveries from the underlying
collateral in the cover pool. Recoveries are calculated by comparing the NPV of
cashflows from the cover pool against the NPV of privileged liabilities (the covered
bonds themselves along with privileged swaps).
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Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
Moody’s
The following is a synopsis of the methodology used by Moody’s to rate covered
bonds. For a complete overview of the Agency’s approach, please see ‘Moody’s
Rating Approach to Covered Bonds’, published 4th March 2010.
Moody’s employs a joint default methodology, capturing both the credit strength of
the issuing bank along with that of the cover pool. The rating of the issuing bank is
the starting point of the Agency’s analysis, with the final rating of the covered bond
programme determined by the quality of the collateral pool, the strength of the legal
framework under which the programme is issued, and any other pertinent contractual
commitments. Similar to its approach to other asset classes, the Agency uses an
Expected Loss approach, combining the issuer PD based on the senior unsecured
rating and the expected LGD to CB investors in the event of such a default.
Moody’s uses a four stage process for determining its covered bond ratings, looking
first at the rating of the issuer, followed by consideration around the credit quality of
the cover pool, modeling refinancing risks and finally computing market risks.
Similar to the approach of the other agencies, analysis starts at the rating of the
issuer. Step 2 results in the analysis of the pool on either a loan-by-loan or stratified
basis. A collateral score is given to act as a guide to the strength of the cover pool,
considering the amount of collateral that can be refinanced at different rating levels
and the amount of collateral written off on issuer default. The higher the collateral
score, the higher the risk-free credit enhancement required by the programme (i.e. a
lower collateral score implies higher collateral quality). Collateral scores can be
reduced based on the (lower) correlation between the cover pool and the issuer itself.
Step 3 involves the modeling of refinancing risks, owing to the fact that natural
amortisation of the pool is likely to be insufficient to meet the repayment profile of
the programme. Moody’s looks to the securitisation market to calculate the discount
that should be applied to the cover pool when calculating a stress refinancing margin.
Finally, under Step 4, the agency looks to calculate market risks post-default of the
issuer.
Moody’s also utilises a metric called the Timely Payment Indicator (or TPI), which is
used in conjunction with the issuer’s rating to calculate the final covered bond
programme rating. The TPI is designed to capture an assessment of the timeliness of
payment of interest and principal following issuer default. TPI drivers are split over
five categories, as follows:
• Legislation/contract considerations
• Hedging considerations
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Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
S&P revised its covered bond rating methodology in 2009. The most significant
development under the new approach has been the establishment of a direct link
between the rating of the issuer and that of its covered bonds in situations where the
programme has an asset-liability mismatch (ALMM). This brings S&P in line with
the approach adopted by the other two agencies.
Zero
Low
1 ALMM Classification
Moderate
High
Category 1
2 Programme Categorisation Category 2
Category 3
Max. # notches
Category 1 2 3
Maximum Potential Zero Unrestricted
3 Low 7 6 5
CB rating
Moderate 6 5 4
High 5 4 3
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Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
Rated covered bonds will therefore benefit from a minimum three notch uplift over
the issuer’s own rating, and a maximum seven notch upgrade. For programmes
without ALMM risk such as pass-through bonds, a covered bond’s rating is
unconstrained by the issuer’s rating.
Step 2 allocates programmes into one of three categories based primarily on their
jurisdiction of issuance.
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Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
Table 14: Maximum potential ratings uplift from the issuer’s ICR
ALMM Classification Category 1 Category 2 Category 3
Zero Unrestricted Unrestricted Unrestricted
Low 7 6 5
Moderate 6 5 4
High 5 4 3
Source: Standard & Poor’s
Step 4 involves the modeling of revised collateral pool market values based on
stressed asset spreads. These are used to calculate the expected proceeds to the
programme if it borrowed or sold assets, allowing the Agency to calculate the
required level of over-collateralisation required to support the maximum rating uplift.
Asset market values are calculated using spread shocks, whereby the NPV of
projected asset cashflows is based on stressed discount margins (taken from
securitisation market pricing).
S&P also assigns outlooks for CB ratings (Stable; Positive; Negative and
Developing).
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Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
Issuer Profiles
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(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
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gareth.davies@jpmorgan.com
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gareth.davies@jpmorgan.com
10,000 25,000
8,000 20,000
6,000 15,000
4,000 10,000
2,000 5,000
0 0
2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
Source: ECBC. Latest data available displayed Source: ECBC. Latest data available displayed
Legislative snapshot
We set out below in Table 17 a snapshot of key covered bond attributes in Austria.
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Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
Figure 9: Austrian real GDP growth, y-on-y, % Figure 10: Austrian unemployment level, %
6 Real GDP grow th 6
4 5
2 4
0 3
-2 2
Unemploy ment
-4 1
-6 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 11: Austrian CPI and base rate, % Figure 12: Austrian consumer confidence, balance of survey
5 Inflation Base rate
20 Cons. Confidence
4
10
3
2 0
1 -10
0 -20
-1
-30
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg
Source: Bloomberg
Figure 13: Austrian outstanding mortgage stock (€mm) and annual Figure 14: Austrian average mortgage rate, %
change, % (RHS) 7 Av g mortgage rate
80,000 Outstanding mortgage stock Annual change in mtge stock (RHS) 30% 6
70,000 25% 5
60,000 4
20%
50,000 3
40,000 15%
2
30,000 10% 1
20,000
5% 0
10,000
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
0 0%
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Source: ECB
Source: ECB
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Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
Table 19: Erste Bank, select balance sheet items, €mm Current LTMV ranges Mortgage
As at 31 Mar 2010
FY 2009 0-<=40% 35
Commercial Loans 70,296 >40%-<=50% 17
Consumer Loans 51,702 >50%-<=60% 48
Other Loans 7,136 Source: Investor report
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Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
PBT 3.2
Taxes 0.3
Net profit (loss) 2.9
Source: Kommunalkredit AG Annual Report 2009
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Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
UniCredit Bank Austria Table 29: UniCredit Bank Austria, select financial metrics
FY 2009
Bank Austria is part of the UniCredit Group and one of
NIM 4.0
the leading banks in the Central and Eastern Europe ROA 0.5
region. ROE .1
ROC 1.4
C:I 50.9
Bank Austria is one of the leading banks in the country in Core capital 8.7
offering services to the corporate world, with Source: Bloomberg
88%/68%/45% of large/medium/small Austrian
corporates and businesses amongst its customers. Cover pool overview
We set out below some of the key cover pool
Being part of the UniCredit Group, the bank also has characteristics:
access to the growing Central and Eastern European
markets, where the Group has over 4,000 branches in 19 Table 30: Covered bond characteristics
countries. Unicredit Bank Austria issues public-sector As at 30 Apr
backed covered bonds. 2010
S/M/F
Financial performance Covered Bond rating -/Aaa/-
Issuer rating A/A1/-
We set out below some of the key financial performance
metrics: Cover pool size (€) 2,797,000,000
Number of loans 3,163
Table 27: UniCredit Bank Austria, select income statement items,
Remaining tenor (yrs) 13
€mm WA seasoning (yrs) 6
FY 2009 Fixed rate assets (in %) 33
Net interest income 7,058 Bullet Loans (in %) 44
Provisions for loan losses 2,267
NII less provisions 4,791 Debtor distribution (in %)
Municipalities 41
Commissions & fee income 2,245 Guaranteed by Federal States 35
Other operating income 378 Guaranteed by Municipalities 14
Non-interest expense 4,206 Federal States 7
Operating profit (loss) 1,384 Guaranteed by the State 1
Other 2
PBT 1,335 Source: Investor report
Taxes 182
Net profit (loss) 1,102
Source: Bloomberg
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Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
41
Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
Figure 15: Mortgage CB Issuance, €mm Figure 16: Mortgage CB outstanding, €mm
5,000 8,000
7,000
4,000
6,000
3,000 5,000
4,000
2,000 3,000
2,000
1,000
1,000
0 0
2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
Source: ECBC. Latest data available displayed Source: ECBC. Latest data available displayed
Legislative snapshot
We set out below in Table 31 a snapshot of key covered bond attributes in Canada.
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Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
Figure 17: Canada real GDP growth, y-on-y, % Figure 18: Canada unemployment level and mortgage arrears (RHS),
8 Real GDP grow th %
6 10 Unemploy ment Mortgage arrears (RHS) 0.50
4 8 0.40
2
6 0.30
0
4 0.20
-2
-4 2 0.10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
0 0.00
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Source: Bloomberg
Source: Bloomberg, Canadian Banker Association
Figure 19: Canada CPI and base rate, % Figure 20: Canada consumer confidence index, #
7 Inflation Base rate
6 120 Cons. Confidence
5 100
4
3 80
2 60
1
0 40
-1 20
-2
0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Source: Bloomberg
Source: Bloomberg
Figure 21: Canada house price growth, % Figure 22: Canada housing permits issued and housing starts index
15 House price grow th (RHS), #
8,000 Housing permits Housing starts index (RHS) 350
10 7,000 300
6,000 250
5 5,000
200
4,000
0 150
3,000
2,000 100
-5 1,000 50
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
0 0
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Source: Bloomberg
Source: Bloomberg
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Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
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Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
45
Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
46
Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
Table 44: Scotiabank, select income statement items, CADmm Number of loans 21,735
Average loan (in CAD) 142,058
FY 2009
WA remaining term (mths) 29
Net interest income 8,328
WA current LTV (in %) 63.8
Provisions for loan losses 1,744
Highest regional exposure (in %) Ontario – 56.8
NII less provisions 6,584
Fixed rate mortgages (in %) 100
Owner occupied properties (in %) 100
Commissions & fee income 4,323
Other operating income 788
Bureau Score breakdown (in %)
Non-interest expense 7,919
<500 1
Operating profit (loss) 4,794
500-599 2
600-699 15
PBT 4,794
700-799 58
Taxes 1,133
>=800 25
Net profit (loss) 3,547
Source: Bloomberg LTV breakdown (in %)
<=36 79.0
Table 45: Scotiabank, select balance sheet items, CADmm 36-41.99 0.2
42-47.99 10.8
FY 2009 48-53.99 3.1
Commercial loans 106,520 54-59.99 6.4
Consumer loans 162,652 60-65.99 0.3
Loans 266,302 66-71.99 0.0
Total Assets 496,516 >=72 0.3
Deposits 350,419 Source: Investor report
Short-term borrowings 51,256
Other short-term borrowings 9,583
Long-term borrowings 6,444
Equity 25,326
Source: Bloomberg
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Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
48
Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
49
Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
Source: ECBC. Latest data available displayed Source: ECBC. Latest data available displayed
Legislative snapshot
We set out below in Table 52 a snapshot of key covered bond attributes in Denmark.
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Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
Loans to public
that of derivative the issued bonds (this could happen if, for example, house prices fall or bond values
financial instruments) in
authorities the event of insolvency rise).
Claims with banks
JCBs are backed by the same collateral as covered bonds but only have a secondary
Eligible Assets Junior Covered Bonds
preferential claim towards the assets in the capital centre, behind covered bond
Government securities Secondary claim against holders and derivative counterparties. In addition, if the cover pool is insufficient to
all remaining assets in
the capital centre in the
event of insolvency
satisfy all the claims in the capital centre, JCBs have a residual claim towards the
Over-collateralisation Equity
assets of the issuer and in this case they would rank pari passu with unsecured
Mandatory 8% of RWA claims, including covered bonds. To date, there has been only one issue of junior
for specialist mortgage
banks covered bonds (issued by Nykredit, rated Aa3 by Moody’s and with a risk weight of
Voluntary basis for
commercial banks
20%).
Source: J.P. Morgan Covered Bonds Research As for “traditional” covered bonds, issuers are fully liable for the outstanding JCBs
and can defer payments to these bonds only if payments would breach the tests
imposed by the balance principle, if such tests have already been breached or in case
of an issuer insolvency.
51
Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
Figure 26: Danish real GDP growth, y-on-y % Figure 27: Danish unemployment level, %
6 Real GDP grow th 7
Unemploy ment
4 6
2 5
0 4
-2 3
-4 2
-6 1
-8 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 28: Danish CPI and base rate, % Figure 29: Danish consumer confidence, index
5 15
Cons. Confidence
Inflation Base rate
4 10
5
3
0
2
-5
1
-10
0 -15
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 30: Danish nominal house price growth, y-on-y % Figure 31: Danish housing starts, number
30% 20000
OECD HP nominal grow th Housing starts
20%
15000
10%
10000
0%
5000
-10%
-20% 0
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
52
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gareth.davies@jpmorgan.com
53
Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
Table 59: Danske Bank, select balance sheet items, DKKmm Total Cover Pool Balance: 31,936,752,259
Avg Loan Balance: 610,214
FY 2009 No. of Loans: 52,337
Loans to public 1,815,615 WA LTV (in %): 58
Total Assets 3,098,477 OC at cut-off (in %): 16
Deposits 859,580 Substitution collateral 515,583,500
Short-term borrowings 311,169 Seasoning (in months): 40
Long-term borrowings 1,111,658 Remaining term (in months): 318
Equity 100,659 Copenhagen concentration (in %): 36
Source: Bloomberg Source: Investor report
Table 60: Danske Bank, select financial metrics Table 64: Collateral pool LTV breakdown, Pool D (domestic)
FY 2009 Current Indexed LTV ranges As at 30 April
NIM 1.6 2010
ROA 0.1 0-<=40% 24
ROE 1.7 >40%-<=50% 14
ROC 0.1 >50%-<=60% 16
C:I 49.8 >60%-<=70% 16
Core capital 14.1 >70%-<=80% 14
Source: Bloomberg >80% 16
Source: Investor report
54
Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
Financial performance
We set out below some of the key financial performance
metrics:
PBT 450
Taxes 113
Net profit (loss) 337
Source: DLR Kredit Annual Report 2009
55
Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
PBT 22,897
Taxes 5,637
Net profit (loss) 17,230
Source: Bloomberg
56
Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
57
Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
Table 80: Realkredit Danmark, select income statement items, Table 84: Collateral pool LTV breakdown
DKKmm
Current LTV ranges As at May 2010
FY 2009 0-<=40% 63
Net interest income 5,732 >40%-<=60% 20
Provisions for loan losses 1,265 >60%-<=80% 12
NII less provisions 4,467 >80% 6
Source: Investor report
Commissions and fee income 516
Other operating income 7
Non-interest expense 1,012
PBT 3,333
Taxes 841
Net profit (loss) 2,492
Source: Realkredit Danmark Annual Report 2009
58
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gareth.davies@jpmorgan.com
59
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gareth.davies@jpmorgan.com
0 0
2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
Source: ECBC. Latest data available displayed Source: ECBC. Latest data available displayed
Legislative snapshot
We set out below in Table 85 a snapshot of key covered bond attributes in The
Netherlands.
60
Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
Figure 34: Dutch real GDP growth, y-on-y, % Figure 35: Dutch unemployment level, %
6 Real GDP grow th 8 Unemploy ment
4 7
6
2 5
0 4
-2 3
2
-4
1
-6 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Source: Bloomberg Source: Bloomberg
Figure 36: Dutch CPI and base rate, % Figure 37: Dutch consumer confidence, balance of survey
5 Inflation Base rate
40 Cons. Confidence
4 30
20
3 10
0
2 -10
-20
1
-30
0 -40
-50
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg
Source: Bloomberg
Figure 38: Dutch house price growth, y-on-y, % Figure 39: Dutch annual dwelling transactions, #
25% House price grow th 250000 Annual ow ner occ.dw elling transactions
20%
200000
15%
10% 150000
5% 100000
0%
50000
-5%
-10% 0
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
61
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gareth.davies@jpmorgan.com
PBT -67
Taxes 50
Net profit (loss) -117
Source: ABN Amro Bank NV Annual Report 2009, unaudited pro forma
Table 87: ABN Amro Bank NV, select balance sheet items, €mm
FY 2009
Loans to public 166,603
Total Assets 202,084
Short-term borrowings 143,782
Other short-term borrowing 4,577
Long-term borrowing 23,451
Equity 4,278
Source: ABN Amro Bank NV Annual Report 2009, unaudited pro forma
62
Gareth Davies, CFA Europe Credit Research
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PBT 67
Taxes 16
Net profit (loss) 50
Source: Achmea Hypotheekbank Annual Report 2009
63
Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
ING Bank NV Table 95: ING Bank NV, select financial metrics
FY 2009
ING Bank NV is the Dutch subsidiary of the ING Group,
NIM 1.2
a global financial institution based in the Netherlands. ROA 0.1
ING offers a wide range of financial products, including ROE 2.6
banking, insurance, investments and retirement services. ROC 0.2
C:I 69.0
Core capital 10.2
At the end of 2009, ING announced that it will proceed Source: Bloomberg
with a gradual separation of its banking and insurance
businesses, to be completed by the end of 2013, in order Cover pool overview
to provide more efficient and agile operations. We set out below some of the key cover pool
characteristics:
The ING covered bond programme is backed by Dutch
residential mortgages, and is registered with the Dutch Table 96: Covered bond characteristics
central bank. As at 20 June
2010
Financial performance S/M/F
We set out below some of the key financial performance Covered Bond rating AAA/Aaa/AAA
Issuer rating A+/Aa3/A+
metrics:
Cover pool size (€) 19,346,600,194
Table 93: ING Bank NV, select income statement items, €mm Number of loans parts 226,896
Avg loan parts (€) 82,497
FY 2009
Net interest income 11,020 WA original LTMV (in %) 60.0
Provisions for loan losses 2,973 Remaining tenor (yrs) 23.4
NII less provisions 8,047 WA seasoning (yrs) 6.3
64
Gareth Davies, CFA Europe Credit Research
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NIBC Bank NV Table 100: NIBC Bank NV, select financial metrics
FY 2009
NIBC offers merchant banking and specialised finance in
NIM 0.8
sectors such as shipping, oil & gas services, ROA 0.2
infrastructure & renewables and real estate. Merchant ROE 2.7
Banking provides end-clients with investment banking ROC 0.2
C:I 53.9
products in the Benelux and Germany, while Specialised Core capital 16.1
Finance focuses on asset and project financing, along Source: NIBC Bank NV Annual Report 2009, Bloomberg
with the Group's retail activities including residential
mortgages and retail savings. Cover pool overview
We set out below some of the key cover pool
The bank, founded in 1945, two Dutch pension funds, characteristics:
ABP and PGGM, acquired 85% of NIB, creating the NIB
Capital brand, while 15% was owned by the Dutch Table 101: Covered bond characteristics – Dutch assets
Government. In 2005, a consortium of financial As at 31 May
institutions, led by J.C. Flowers & Co. purchased all 2010
equity interests in the bank, which changed its name to S/M/F
NIBC. Covered Bond rating -/Aa2/AAA
Issuer rating BBB/Baa2/BBB
The NIBC covered bond programme is backed by both Cover pool size (€) 852,962,244
Dutch and German residential mortgages, and is Share of total pool (in %) 76
registered with the Dutch central bank. WA Current LTFV (in %) 94.8
WA Indexed LTFV (in %) 82.6
Financial performance Seasoning (mths) 67
Number of loans 4,469
We set out below some of the key financial performance Avg principal balance (borrower) 190,862
metrics: Avg principal balance (loan part) 85,561
Table 98: NIBC Bank NV, select income statement items, €mm Interest only (in %) 58.3
NHG loans (in %) 11.8
FY 2009 Highest regional concentration (in %) Zuid-Holland 21
Net interest income 64
Original LTFV distribution (in %)
Commissions & fee income 32 <=50% 3.0
Other operating income 35 >50%-<=60% 4.2
Non-interest expense 187 >60%-<=70% 6.5
Operating profit (loss) 165 >70%-<=60% 11.7
>80%-<=90% 12.9
PBT 41 >90%-<=100% 10.2
Taxes -2 >100% 39.7
Net profit (loss) 43 Source: Investor report
Source: NIBC Bank NV Annual Report 2009, Bloomberg
Table 99: NIBC Bank NV, select balance sheet items, €mm
FY 2009
Loans to public 8,933
Total Assets 29,189
Deposits 4,332
Short-term borrowings 2,601
Long-term borrowing 16,605
Equity 1,696
Source: NIBC Bank NV Annual Report 2009, Bloomberg
65
Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
66
Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
Table 104: SNS Bank NV, select balance sheet items, €mm
FY 2009
Real Estate Loans 13,196
Consumer Loans 50,878
Other Loans 3,405
Loans to public 70,194
Total Assets 80,289
Deposits 24,435
Short-term borrowings 16,954
Long-term borrowing 30,739
Equity 2,434
Source: SNS Bank NV Annual Report 2009
67
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gareth.davies@jpmorgan.com
68
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(44-20) 7325-7283 21 September 2010
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69
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1,500 6,000
1,000 4,000
500 2,000
0 0
2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
Source: ECBC. Latest data available displayed Source: ECBC. Latest data available displayed
Legislative snapshot
We set out below in Table 108 a snapshot of key covered bond attributes in Finland.
70
Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
Figure 42: Finnish real GDP growth, y-on-y, % Figure 43: Finnish unemployment level, %
10 Real GDP grow th 12 Unemploy ment
5 10
8
0
6
-5
4
-10 2
-15 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 44: Finnish CPI and base rate, % Figure 45: Finnish consumer confidence, index
6 Inflation Base rate 25 Cons. Confidence
5 20
4 15
3
10
2
5
1
0 0
-1 -5
-2 -10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Figure 46: Finnish nominal house price growth, y-on-y % Figure 47: Finnish construction sector production index
15% OECD HP nominal grow th 140 OECD Construction production index
120
10%
100
5% 80
0% 60
40
-5%
20
-10% 0
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
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Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
Aktia Real Estate Mortgage Bank plc Table 112: Aktia Bank plc, funding profile
2009
Aktia Real Estate Mortgage Bank plc (Aktia MB) is a
Customer deposits 33%
Finnish credit institution, specialising in mortgage loans. Covered bonds 25%
The bank grants loans to both individuals and housing Repos 15%
corporations, and is regulated by the Finnish Mortgage CDs & MM 12%
Local bank deposits 9%
Bank Act. The institution is owned by Aktia Bank plc Senior debt 3%
(52.3% of equity, 70% voting rights), 30 savings banks Subordinated debt 3%
(36.2%, 20%) and 39 local co-operative banks (11.5%, Source: Aktia Bank, debt investor presentation
10%). Aktia Group is the fourth largest banking group in
Finland, acting as the central financial institution for Cover pool overview
independent savings and cooperative banks. We set out below some of the key cover pool
characteristics:
Aktia Real Estate Mortgage Bank plc mortgages are
distributed through the branch networks of the co- Table 113: Covered bond characteristics
operating banks. Eligible cover pool collateral is As at 31 March 2010
restricted to first-lien Finnish residential mortgages. S/M/F
Furthermore, the originator has committed to a Covered bond rating -/Aa1/-
Issuer rating (Aktia Bank plc) -/A1/-
mandatory over-collateralisation level of 8.5%. The bank
funds its activities predominantly by issuing covered €mm
bonds, with short-term funding coming from a credit Mortgages 2,772
Substitute collateral 292
facility from Aktia Bank. Collateral pool 3,064
Table 110: Aktia Bank plc, select balance sheet items, €mm
2009
Loans to public 6,124
Mortgage loans through Aktia branches 1,346
Mortgage loans brokered by local banks 1,290
Other loans through Aktia branches 3,488
Total assets 9,539
Source: Aktia Bank annual report 2009
72
Gareth Davies, CFA Europe Credit Research
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73
Gareth Davies, CFA Europe Credit Research
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Table 118: Sampo Bank plc, select income statement items, €mm
2009
Net Interest Income 458.9
Net Other Income 239.1
Total Operating Income 698
Total Operating Expenses -438
Write-Downs -227.3
Operating Profit 32.7
Profit 18.4
Source: Sampo Bank annual report 2009
Table 119: Sampo Bank plc, select balance sheet items, €mm
2009
Households 10,171
Corporates & housing companies 5,761
Other 888
Loans to credit institutions 3,139
Loans & receivables 19,960
Total assets 22,889
Source: Sampo Bank annual report 2009
74
Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
75
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0 0
2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
Source: ECBC. Latest data available displayed Source: ECBC. Latest data available displayed
Legislative snapshot
We set out below in Table 122 a snapshot of key covered bond attributes in France.
76
Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
77
Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
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Figure 50: French real GDP growth, y-on-y, % Figure 51: French unemployment level, %
6 Real GDP grow th 10
4 8
2
6
0
4
-2
Unemploy ment
-4 2
-6 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 52: French CPI and base rate, % Figure 53: French consumer confidence, balance of survey
6 Inflation Base rate
10 Cons. Confidence
5
4 0
3 -10
2 -20
1 -30
0
-40
-1
-50
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg
Source: Bloomberg
Figure 54: French house price growth, y-on-y, % Figure 55: French dwelling sales, #
20 House price grow th 40000 Dw elling sales
15 35000
10 30000
25000
5
20000
0
15000
-5 10000
-10 5000
-15 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-06
Jul-06
Mar-07
Jul-07
Mar-08
Jul-08
Mar-09
Jul-09
Mar-10
Nov-06
Nov-07
Nov-08
Nov-09
78
Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
79
Gareth Davies, CFA Europe Credit Research
(44-20) 7325-7283 21 September 2010
gareth.davies@jpmorgan.com
BNP Paribas Home Loan Covered Table 128: BNP Paribas Group, select financial metrics
Bonds FY 2009
NIM 1.1
BNP Paribas Group was created ten years ago through ROA 0.3
the merger of Banque Nationale de Paris and Paribas. ROE 10.6
ROC 0.5
Since then has continued its expansion by acquiring C:I 57.9
BNL, the sixth largest Italian bank, and 75% of Fortis Core capital 10.1
Bank in Belgium and 66% of BGL in Luxembourg. The Source: BNP Paribas Group Annual Report 2009, Bloomberg
group focuses on retail baking, corporate and investment
banking and investment solutions, providing services to Cover pool overview
13mm customers in its core markets of Belgium, France, We set out below some of the key cover pool
Italy and Luxembourg and a further 5mm in its characteristics:
secondary markets: the Mediterranean basin, Eastern
Europe and the USA. BNP Paribas is the largest Table 129: Covered bond characteristics
European banking group by deposits. As at 31 May
2010
The bank utilises structured covered bonds for part of Covered Bond rating S/M/F AAA/Aaa/AAA
Issuer rating S/M/F AA/Aa2/AA-
its funding needs. Cover pool size (€) 31,500,969,171
Number of loans 327,464
Financial performance Avg loan (€) 96,197
We set out below some of the key financial performance WA current LTV (in %) 69.6
metrics: WA current indexed LTV (in %) 66.6
Remaining tenor (mths) 187.1
Table 126: BNP Paribas Group, select income statement items, WA seasoning (mths) 45.6
€mm
Owner occupied property (in %) 79
FY 2009 Buy-to-let (in %) 17
Net interest income 21,021 Employed borrower (in %) 80
Provisions for loan losses 8,369 Self-employed borrower (in %) 14
NII less provisions 12,652 Unemployed borrower (in %) 5
Source: Investor report
Commissions & fee income 12,276
Other operating income 5,182
Table 130: Collateral pool LTFV breakdown
Non-interest expense 28,149
Operating profit (loss) 8,569 Current LTFV ranges As at 31 May
2010
PBT 9,000 0-<=40% 13.7
Taxes 2,526 >40%-<=50% 7.6
Net profit (loss) 5,832 >50%-<=60% 9.1
Source: BNP Paribas Group Annual Report 2009, Bloomberg >60%-<=70% 11.3
>70%-<=80% 15.2
>80%-<=90% 21.8
Table 127: BNP Paribas Group, select balance sheet items, €mm
>90%-<=100% 21.3
FY 2009 Source: Investor report
Loans to public 678,766
Total Assets 2,057,698
Deposits 604,903
Short-term borrowings 1,021,434
Other short-term borrowings 85,295
Long-term borrowing 153,347
Equity 80,344
Source: BNP Paribas Group Annual Report 2009, Bloomberg
80
Gareth Davies, CFA Europe Credit Research
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Compagnie de Financement Foncier (CFF) gained its Cover pool size (€bn) 98.25
current status as a SCF in 1999, when old secured loans
Asset type (in %)
as well as eligible assets and liabilities were transferred Mortgage loans, of which: 32.97
to CFF to make it compliant with the new law on SCF Mortgage loans and related items 18.66
(Act of 25 June 1999). European RMBS 14.31
Public sector exposures, of which: 52.62
Mortgage loans guaranteed by the public sector 10.88
CFF adopted a minimum OC ratio of 5% for it’s OF and French public sector loans 19.09
in 2009 issued €15.8bn of covered bonds, of which 78% International public sector loans 22.65
was purchased by public investors, while the remaining Other assets, of which: 12.66
Replacement securities 9.45
22% was placed privately. Other assets 3.21
The bank utilises obligation foncieres for part of its Coverage ratio as per SCF law 10.5
funding needs. Source: CFF SCF Annual report 2009
Financial performance
We set out below some of the key financial performance
metrics:
PBT 258
Taxes 83
Net profit (loss) 175
Source: CFF SCF Annual report 2009
81
Gareth Davies, CFA Europe Credit Research
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gareth.davies@jpmorgan.com
Crédit Agricole Covered Bonds Table 136: Crédit Agricole SA, select financial metrics
FY 2009
The Credit Agricole Group offers retail banking and
NIM 1.0
corporate and investment baking products and specialised ROA 0.1
financial services. The group operates globally (it is the ROE 2.6
largest retail bank in France and the second largest ROC 0.2
C:I 67.8
banking group by revenues in Europe and has operations Core capital 9.5
in 70 countries), although its core markets are France Source: Crédit Agricole SA Annual Report 2009, Bloomberg
(where it has 28% of the household market), Italy and
Greece. Cover pool overview
We set out below some of the key cover pool
Activities within the Group are organised into three, characteristics:
broad business lines. Retail banking in France and
abroad; Specialised Business lines including asset Table 137: Covered bond characteristics
management, insurance, private banking and consumer As at 30 April
finance, leasing and factoring; and Corporate and 2010
Investment banking. Covered Bond rating S/M/F AAA/Aaa/AAA
Issuer rating S/M/F AA-/Aa1/AA-
Cover pool size (€) 8,241,166,343
The bank utilises structured covered bonds for part of Number of loans 172,402
its funding needs. Avg loan (€) 47,802
82
Gareth Davies, CFA Europe Credit Research
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The bank utilises structured covered bonds for part of WA current LTV (in %) 67
WA current indexed LTV (in %) 64
its funding needs. Remaining tenor (mths) 169
WA seasoning (mths) 44
Financial performance
Owner occupied property (in %) 85
We set out below some of the key financial performance Buy-to-let (in %) 11
metrics: Employed borrower (in %) 84
Self-employed borrower (in %) 13
Table 139: Crédit Mutuel Arkea Group, select income statement Unemployed borrower (in %) 3
items, €mm Source: Investor report
FY 2009
Net interest income 610
Table 143: Collateral pool LTFV breakdown
Current LTFV ranges As at 31 May
Commissions & fee income 429 2010
Other operating income 5,350 0-<=40% 14.2
Non-interest expense 971 >40%-<=50% 9.4
Operating profit (loss) 200 >50%-<=60% 11.9
>60%-<=70% 13.7
PBT 208 >70%-<=80% 16.8
Taxes 46 >80%-<=90% 19.0
Net profit (loss) 161 >90%-<=100% 14.9
Source: Crédit Mutuel Arkea Group Annual Report 2009 Source: Investor report
83
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Crédit Mutuel-CIC Covered Bonds Table 146: Crédit Mutuel - CIC, select financial metrics
FY 2009
The CM-CIC Group operates along different business
NIM 1.4
lines. Banque Fédérative du Crédit Mutuel (BFCM) ROA 0.3
manages the general interest of the specialised branches ROE 6.7
of the group, is involved in the financing of large-scale ROC 0.7
C:I 59.9
projects and is active on the financial markets. Core capital 11.8
Source: Bloomberg
Banque de l'Economie is the corporate bank of the Group
for industrial and trading companies. CM-CIC also owns Cover pool overview
a real estate agency and offers insurance products. We set out below some of the key cover pool
CMCIC CB is registered as a limited liability company characteristics:
and license to act as a credit institution with limited
purpose. Its sole activity if to finance residential Table 147: Covered bond characteristics
mortgages for CMCEE-CIC group. As at 30 April
2010
The bank utilises structured covered bonds for part of S/M/F
its funding needs. Covered Bond rating AAA/Aaa/AAA
Issuer rating (Credit Mutuel) A+/Aa3/AA-
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HSBC France Covered Bonds Table 156: HSBC Group, select financial metrics
FY 2009
HSBC France (HBFR) is part o the HSBC Group, one of
NIM 2.2
the largest banking groups globally and headquartered in ROA 0.2
the UK. HSBC France was created by the combination of ROE 5.0
five banks (CCF, UBP, Banque de Picardie, Banque de ROC 1.5
C:I 46.4
Baecque Beau and the Paris branches of Banque Hervet), Core capital 10.8
which were rebranded in 2005 under the HSBC logo. Source: Bloomberg
HSBC France operates through 380 branches offering Cover pool overview
global banking and markets, asset management, We set out below some of the key cover pool
insurance and private banking services. characteristics:
The bank utilises structured covered bonds for part of Table 157: Covered bond characteristics
its funding needs. As at 31 May
2010
Financial performance S/M/F
We set out below some of the key financial performance Covered Bond rating AAA/Aaa/-
Issuer rating (HSBC France) AA/Aa3/AA
metrics:
Cover pool size (€) 3,844,669,487
Table 154: HSBC Group, select income statement items, €mm Number of loans 29,177
Avg loan (€) 131,771
FY 2009
Net interest income 29,379 WA current LTV (in %) 68.4
Provisions for loan losses 19,047 WA current indexed LTV (in %) 63.1
NII less provisions 10,332 Remaining tenor (mths) 171
WA seasoning (mths) 46
Commissions & fee income 15,390
Other operating income 5,074 Owner occupied property (in %) 76
Non-interest expense 28,007 Buy-to-let (in %) 16
Operating profit (loss) 10,255 Employed (in %) 72.5
Self employed (in %) 21
PBT 5,090 Source: Investor report
Taxes 277
Net profit (loss) 4,195
Table 158: Collateral pool LTFV breakdown
Source: Bloomberg
Current LTFV ranges As at 31 May
Table 155: HSBC Group, select balance sheet items, €mm 2010
0-<=40% 12.9
FY 2009 >40%-<=50% 8.9
Real estate loans 48,419 >50%-<=60% 12.3
Commercial loans 335,551 >60%-<=70% 13.5
Consumer loans 302,984 >70%-<=80% 16.0
Other loans 4,668 >80%-<=90% 17.0
Loans to public 625,379 >90%-<=100% 15.4
Total Assets 1,649,900 >100% 4.0
Deposits 808,760
Source: Investor report
Short-term borrowings 140,882
Other short-term borrowings 295,987
Long-term borrowing 70,022
Equity 94,663
Source: Bloomberg
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BNP Paribas Public Sector SCF Table 166: BNP Paribas Group, select financial metrics
FY 2009
BNP Paribas Group was created ten years ago through
NIM 1.1
the merger of Banque Nationale de Paris and Paribas. ROA 0.3
Since then has continued its expansion by acquiring ROE 10.6
BNL, the sixth largest Italian bank, and 75% of Fortis ROC 0.5
C:I 57.9
Bank in Belgium and 66% of BGL in Luxembourg. The Core capital 10.1
group focuses on retail baking, corporate and investment Source: BNP Paribas Group Annual Report 2009, Bloomberg
banking and investment solutions, providing services to
13mm customers in its core markets of Belgium, France, Cover pool overview
Italy and Luxembourg and a further 5mm in its We set out below some of the key cover pool
secondary markets: the Mediterranean basin, Eastern characteristics:
Europe and the USA. BNP Paribas is the largest
European banking group by deposits. Table 167: Covered bond characteristics
As at 31 March
Unlike BNP Paribas Home Loans CB, BNP Paribas 2010
public sector SCF utilises obligation foncieres for part S/M/F
of its funding. Covered Bond rating AAA/Aaa/AAA
Issuer rating S/M/F AA/Aa2/AA-
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Financial performance
We set out below some of the key financial performance
metrics:
PBT 5
Taxes 2
Net profit (loss) 3
Source: CIF EuroMortgage SCF Annual report 2009
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PBT 207
Taxes 73
Net profit (loss) 134
Source: Dexia Municipal Agency Annual report 2009
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PBT 7
Taxes 2
Net profit (loss) 5
Source: Société Générale SCF Annual report 2009
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0 0
2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
Source: ECBC. Latest data available displayed Source: ECBC. Latest data available displayed
Legislative snapshot
We set out in Table 179 a snapshot of key covered bond attributes in Germany.
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Figure 58: German real GDP growth, y-on-y, % Figure 59: German unemployment level, %
6 Real GDP grow th 14
4 12
2 10
0 8
-2 6
-4 4 Unemploy ment
-6 2
-8 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg
Source: Bloomberg
Figure 60: German CPI and base rate, % Figure 61: German consumer confidence, balance of survey
6 Inflation Base rate
120 Cons. Confidence
5
4 100
3 80
2 60
1 40
0
20
-1
0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg
Source: Bloomberg
Figure 62: German nominal house price growth, % Figure 63: German residential construction orders index, #
2% Nominal house price grow th 200 Residential construction orders index
1%
150
0%
-1% 100
-2%
50
-3%
-4% 0
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
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PBT 87
Taxes 20 Table 184: Mortgage covered bond characteristics
Net profit (loss) 49 Current LTMV ranges As at 31 Mar
Source: Bloomberg 2010
S/M/F
Table 181: Aareal Bank AG, select balance sheet items, €mm Covered Bond rating -/-/AAA
Issuer rating -/-/A-
FY 2009
Loans to public 23,176 Cover pool size (€) 8,818,400,000
Total Assets 39,569 Over-collateralisation (€) 1,647,000,000
Deposits 21,361
Short-term borrowings 5,083 Geographical split (in %)
Long-term borrowing 9,131 Western Europe ex. Germany 25
Equity 2,077 Southern Europe 20
Source: Bloomberg Germany 18
Northern Europe 16
North America 12
Table 182: Aareal Bank AG, select financial metrics Eastern Europe 9
FY 2009
NIM 1.2 Property type (in %)
ROA 0.1 Office 37
ROE 3.9 Retail 22
ROC 0.4 Logistic 13
C:I 63.0 Residential 13
Core capital 11.0 Hotel 12
Other 3
Source: Bloomberg
Source: Investor report
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DekaBank Deutsche Girozentrale Table 208: DekaBank Deutsche Girozentrale, select financial
metrics
DekaBank is the German Savings Bank Finance Group's
FY 2009
central asset manager. The German Savings Banks and NIM 0.3
Giro Association and a group of Landebanken each own ROA 0.3
50% of DekaBank. ROE 11.6
ROC 0.6
C:I 48.9
With managed fund assets of about € 160 billion, more Core capital 12.7
than five million customer deposits and group locations Source: Bloomberg
in Luxembourg and Switzerland, the DekaBank Group is
one of the largest asset managers in Germany, with the Cover pool overview
savings banks and Landesbanken as exclusive sales We set out below some of the key cover pool
partners for its products. characteristics:
The three main lines of business are asset management- Table 209: Public-sector covered bond characteristics
capital markets, asset management-property and As at 30 June
corporate banking and markets, plus a central savings 2010
banks sales unit. S/M/F
Covered Bond rating AAA/Aaa/-
Issuer rating A/Aa2/-
Financial performance
We set out below some of the key financial performance Cover pool size (€) 23,732,221,300
Over-collateralisation (€) 3,249,374,604
metrics:
Geographical split (in %)
Table 206: DekaBank Deutsche Girozentrale, select income Germany 88
statement items, €mm Mixed America 3
Other 9
FY 2009
Net interest income 453 Borrower type (in %)
Provisions for loan losses 352 Regional authorities 10
NII less provisions 100 Local authorities 4
State 2
Commissions & fee income 2,280 Other 84
Non-interest expense 2,135
Source: Investor report
Operating profit (loss) 520
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Deutsche Apotheker und Aertzebank Table 213: Deutsche Apotheker und Aertzebank, select financial
metrics
Deutsche Apotheker und Aertzebank (‘apoBank’) was
FY 2009
founded in 1902 as a cooperative bank for the academic NIM 1.6
medical professions. As a focused specialist and niche ROA -0.7
player, the bank has a strong market position in the ROE -15.6
ROC -1.2
German healthcare sector; with over 100,000 members, C:I 161.0
more than 330,000 customers and a balance sheet total of Core capital 6.2
more than 40 billion euro, apoBank is the largest primary Source: Bloomberg
cooperative bank in Germany.
PBT -269
Taxes 14
Net profit (loss) -283
Source: Bloomberg
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Table 220: DG Hyp, select balance sheet items, €mm Cover pool size (€) 16,228,390,0000
Over-collateralisation (in %) 26.04
FY 2009
Other Loans 37,043
Property type (in %)
Loans to public 37,043
Residential 57
Total Assets 68,075
Office 21
Deposits 16,016
Retail 9
Short-term borrowings 7,099
Industrial 1
Other short-term borrowings 1,129
Other 12
Long-term borrowing 42,086
Equity 1,653
Geographical split (in %)
Source: Bloomberg Germany 85
UK 4
Table 221: DG Hyp, select financial metrics France 4
USA 4
FY 2009 Other 3
NIM 0.2
Source: Investor report
ROA 0.0
ROE 0.0
ROC 0.0
Core capital 6.9
Source: Bloomberg
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The bank also offers public-sector lending and capital Cover pool size (€) 16,010,000,000
market transactions with German and foreign market Overcollateralisation (€) 970,000,000
operator and is part of Nord/LB since 2008. Borrower type (in %)
German Central Government 3
Financial performance German Federal States 30
We set out below some of the key financial performance Municipalities, non-profit organizations 6
Foreign loans 42
metrics: Public sector banks 18
Public sector companies 2
Table 224: Deutsche Hypo Hannover, select income statement
items, €mm Ratings split (in %)
AAA 27
FY 2009 AA 59
Net interest income 98 A 13
Provisions for loan losses 91 BBB 1
NII less provisions 7 Source: Investor report
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PBT 22
Taxes 22
Table 238: Ship covered bond characteristics
Net profit (loss) 0.3 As at 31 Mar
Source: Deutsche Schiffsbank 2009 Annual Report 2010
S/M/F
Table 235: Deutsche Schiffsbank, select balance sheet items, Covered Bond rating n/a
Issuer rating -/A2/-
€mm
FY 2009 Cover pool size (€) 5,872,500,000
Loans to public 12,467 Overcollateralisation (€) 938,600,000
Total Assets 16,311
Short-term borrowings 3,927 Geographical split (in %)
Long-term borrowing 7,445 Germany 42
Equity 950 Marshall Islands 10
Greece 9
Source: Deutsche Schiffsbank 2009 Annual Report
Liberia 6
Malta 5
Table 236: Deutsche Schiffsbank, select financial metrics Cyprus 5
Other 4
FY 2009
ROE 4.1 Source: Investor report
C:I 19.4
Core capital 9.2
Source: Deutsche Schiffsbank 2009 Annual Report
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Table 248: Eurohypo Group, select income statement items, €mm Borrower type (in %)
Central Government 14
FY 2009 Regional authorities 75
Net interest income 1,245 Local authorities 9
Provisions for loan losses 1,174 Other 2
NII less provisions 71 Source: Investor report
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Commissions & fee income 964 Cover pool size (€) 9,075,000,000
Other operating income 386 Over-collateralisation (€) 4,713,000,000
Non-interest expense 2,900
Operating profit (loss) -203 Property type (in %)
Residential 56
PBT -1,214 Office 14
Taxes 268 Retail 8
Net profit (loss) -1,483 Industrial 1
Other 22
Source: Bloomberg
Geographical split (in %)
Table 260: LBBW, select balance sheet items, €mm Germany 97
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Figure 64: Greek real GDP growth, y-on-y, % Figure 65: Greek unemployment level, %
8 Real GDP grow th 14 Unemploy ment
6 12
10
4
8
2
6
0
4
-2 2
-4 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 66: Greek CPI and base rate, % Figure 67: Greek consumer confidence, balance of survey
6 Inflation Base rate
0
5 -10
4 -20
-30
3
-40
2 -50
1 -60
-70 Cons. Confidence
0
-80
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg
Source: Bloomberg
Figure 68: Greek house price growth, % Figure 69: Greek newly built properties, #
25% House price grow th (Urban areas) House price grow th (Athens) 6000 New ly built properties
20% 5000
15%
4000
10%
3000
5%
2000
0%
-5% 1000
-10% 0
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Jun-00
Jun-01
Jun-02
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
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National Bank of Greece Table 322: National Bank of Greece Group, select financial
metrics
NBG Group is the oldest commercial bank and largest
FY 2009
financial services group in Greece, with a 25% market NIM 4.2
share in retail banking and 24% share in deposits. As ROA 0.8
well as its core domestic market, the institution also ROE 10.2
ROC 3.1
focuses on providing banking services in southeastern C:I 49.8
Europe and the eastern Mediterranean. Core capital 11.3
Source: Bloomberg
The Group provides a wide range of financial products
and is also present in 12 other countries through 9 banks Cover pool overview
and a network of 65 other companies. NBG has a We set out below some of the key cover pool
presence in the following countries through acquisitions: characteristics:
Bulgaria, FYROM, Romania, Turkey and Serbia.
Table 323: Covered bond characteristics
Financial performance As at 31 July
We set out below some of the key financial performance 2010
metrics: S/M/F
Covered Bond rating -/Baa3/A-
Issuer rating BB+/Ba1/BBB-
Table 320: National Bank of Greece Group, select income
statement items, €mm Cover pool size (€) 8,828,437,187
Number of loans 125,084
FY 2009
Avg loan (€) 70,614
Net interest income 4,064
Provisions for loan losses 1,295 WA original LTFV (in %) 64.3
NII less provisions 2,769 WA indexed LTFV (in %) 54.2
Remaining tenor (yrs) 21.4
Commissions & fee income 742 WA seasoning (yrs) 3.6
Other operating income 22
Non-interest expense 2,585 Fixed rate (in %) 45.2
Operating profit (loss) 1,252 Self employed (in %) 33.4
PBT 1,252 Source: Investor report
Taxes 289
Net profit (loss) 923 Table 324: Collateral pool LTFV breakdown
Source: Bloomberg
Current LTFV ranges As at 31 July
2010
Table 321: National Bank of Greece Group, select balance sheet 0-<=40% 15.3
items, €mm >40%-<=50% 10.4
>50%-<=60% 11.1
FY 2009 >60%-<=70% 17.2
Commercial Loans 33,077 >70%-<=80% 22.6
Consumer Loans 44,135 >80%-<=100% 23.4
Source: Investor report
Loans to public 74,753
Total Assets 113,394
Deposits 71,194 Table 325: Collateral pool Indexed LTFV breakdown
Short-term borrowings 21,643
Other short-term borrowing 7,187 Current LTFV ranges As at 31 July
Long-term borrowing 3,085 2010
Equity 9,828 0-<=40% 29.8
>40%-<=50% 12.3
Source: Bloomberg >50%-<=60% 12.5
>60%-<=70% 16.8
>70%-<=80% 13.9
>80%-<=100% 14.7
Source: Investor report
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Figure 70: €-denominated CB Issuance, €mm Figure 71: €-denominated CB outstanding, €mm
1,400 5,000
1,200
4,000
1,000
800 3,000
600 2,000
400
1,000
200
0 0
2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
Source: Dealogic, J.P. Morgan Covered Bond Research Source: Dealogic, J.P. Morgan Covered Bond Research
Legislative snapshot
We set out below in Table 326 a snapshot of key covered bond attributes in Hungary.
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Figure 72: Hungary real GDP growth, y-on-y, % Figure 73: Hungary unemployment level, %
8 Real GDP grow th 14 Unemploy ment
6 12
4
10
2
0 8
-2 6
-4
4
-6
-8 2
-10 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 74: Hungary CPI and base rate, % Figure 75: Hungary consumer confidence index, #
14 Inflation Base rate
0
12
-10
10 Cons. Confidence
-20
8 -30
6 -40
4 -50
2 -60
-70
0
-80
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg
Source: Bloomberg
Figure 76: Hungary house price growth, % Figure 77: Hungary building permits, sum of previous 12mths, #
30% House price grow th 30,000 Building permits (of prev ious 12mths)
25% 25,000
20%
15% 20,000
10% 15,000
5% 10,000
0%
-5% 5,000
-10% 0
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
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15,000 60,000
10,000 40,000
5,000 20,000
0 0
2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
Source: ECBC. Latest data available displayed Source: ECBC. Latest data available displayed
Legislative snapshot
We set out below in Table 335 a snapshot of key covered bond attributes in Ireland.
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Figure 80:Irish real GDP growth, y-on-y, % Figure 83: Irish unemployment level, %
15 Real GDP grow th
14
10
12 Unemploy ment
5 10
0 8
-5 6
4
-10
2
-15
0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 81: Irish CPI and base rate, % Figure 84: Irish consumer confidence, balance of survey
8 Inflation Base rate 140 Cons. Confidence
6 120
4 100
2 80
0
60
-2
40
-4
20
-6
-8 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Figure 82: Irish house price growth, y-on-y, % Figure 85: Irish dwelling completions, #
30 House price grow th 30000 Dw ellings completed
20 25000
10 20000
0 15000
-10 10000
-20 5000
-30 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
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Table 339: Key profit & loss figures, €mm # mortgages 71,717
Avg loan balance 149,611
2006 2007 2008 2009 WA Indexed LTV 92.1%
Net interest income 164.0 179.0 188.0 195.0 LTV>80% 67.3%
Provisions for loan losses LTV>90% 58.6%
NII less provisions LTV>100% 47.3%
Commissions & fee income -67.0 -80.0 -90.0 -101.0
Other operating income 2.0 3.0 3.0 2.0 Asset seasoning 58.5
Non-interest expense 12.0 14.0 14.0 13.0
PBT 87.0 88.0 87.0 35.0 Dublin 32.7%
Taxes 11.0 11.0 11.0 4.0 Other 67.3%
Net profit (loss) 76.0 77.0 76.0 31.0
Source: J.P. Morgan Covered Bond Research, Rating Agencies
Source: Bankscope
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Ratings S&P
Financial performance
AAA 34.8%
We set out below some of the key financial performance AA 42.1%
metrics: A 18.7%
BBB 3.0%
Table 342: Key profit & loss figures, €mm
Largest jurisdictions
2006 2007 2008 2009 1 USA - 20.7%
Net interest income 81 141 136 89 2 Germany – 20.4%
Provisions for loan losses n/a n/a n/a 10 3 Iberia – 11.9%
NII less provisions 81 141 136 79 4 Benelux – 11.3%
Commissions & fee income -2 -2 -11 -58 5 UK - 7.4%
Other operating income 19 17 14 -10
Operating profit (loss) 93 146 119 24 Non-EEA 25.9%
PBT 81 126 101 7 Source: J.P. Morgan Covered Bond Research, Investor Reports, Rating Agencies
Taxes 10 -16 -12 0
Net profit (loss) 71 110 89 7
Source: Bankscope
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# mortgages 43,665
Financial performance Avg loan balance 91,772
We set out below some of the key financial performance WA Indexed LTV 75.1%
LTV>80% 48.0%
metrics for EBS:
LTV>90% 38.2%
LTV>100% 27.3%
Table 345: Key profit & loss figures, €mm
2005 2006 2007 2008 Asset seasoning 60
Net interest income 119.9 150.1 173.6 155.1
Provisions for loan losses 0.4 4.6 19.1 110 Dublin 41.9%
NII less provisions 119.5 145.5 154.5 45.1 Other 58.1%
Non interest income 16 16.3 16.1 14.3 Source: J.P. Morgan Covered Bond Research, Investor Reports, Rating Agencies
Other operating income 7.6 3.4 4.1 2.9
Total operating expenses 89.3 99.3 108.1 100.5
Operating profit (loss) 54.2 70.5 85.7 71.8
PBT before XO items 53.8 65.9 66.6 (38.2)
Taxes 15.1 8.2 10.7 .4
Net profit (loss) 38.7 57.7 55.9 (37.8)
Source: Annual reports
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0 0
2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
Source: ECBC. Latest data available displayed Source: ECBC. Latest data available displayed
Legislative snapshot
We set out below in Table 348 a snapshot of key covered bond attributes in Italy.
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Figure 88: Italian real GDP growth, y-on-y, % Figure 89: Italian unemployment level, %
6 Real GDP grow th 12 Unemploy ment
4 10
2
8
0
6
-2
-4 4
-6 2
-8 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 90: Italian CPI and base rate, % Figure 91: Italian consumer confidence, balance of survey
5 Inflation Base rate
5 Cons. Confidence
4 0
-5
3
-10
2 -15
-20
1 -25
-30
0
-35
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg
Source: Bloomberg
Figure 92: Italian house price growth, % Figure 93: Italian outstanding mortgages (€mm) and annual growth of
25% House price grow th mortgage stock, %
20% 350,000 Outstanding mortgages Grow th in o/s mortgages 25%
15% 300,000
20%
10% 250,000
5% 200,000 15%
0% 150,000 10%
-5% 100,000
-10% 5%
50,000
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
0 0%
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Source: Bloomberg
Source: ECB
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Banca Carige Table 351: Banca Carige Group, select financial metrics
FY 2009
The Banca Carige Group is one of the six largest
ROA 0.6
financial services groups, with over 1,000 branches and ROE 5.6
agencies throughout Italy. The group includes the parent, ROC 1.3
Banca Carige, four other banks (Cassa di Risparmio di C:I 61.8
Core capital 7.9
Savona, Cassa di Risparmio di Carrara, Banca del Monte
Source: Bloomberg
di Lucca, Banca Cesare Ponti), an asset management
company (Carige Asset Management Sgr) and two
Cover pool overview
insurance companies (Carige Assicurazioni and Carige
We set out below some of the key cover pool
Vita Nuova). The group is also the majority shareholder
characteristics:
of Creditis Servizi Finanziari SpA, a company
specialised in consumer credit. Table 352: Covered bond characteristics
As at 30 April
Ownership is split between a foundation (44%), France’s 2010
Groupe BPCE (15%), Generali (3%) and a free float of S/M/F
38%. Covered Bond rating -/Aaa/AAA
Issuer rating A-/A2/A
Financial performance Cover pool size (€) 2,157,851,169
We set out below some of the key financial performance Number of loans 24,571
metrics: Avg loan (€) 87,821
Commissions & fee income 315 Table 353: Collateral pool LTV breakdown
Other operating income 23
Non-interest expense 742 Current LTV ranges As at 30 April
Operating profit (loss) 337 2010
0-<=40% 34.1
PBT 313 >40%-<=50% 15.5
Taxes 104 >50%-<=60% 17.2
Net profit (loss) 205 >60%-<=70% 18.1
>70%-<=80% 13.9
Source: Bloomberg
>80%-<=100% 1.3
Source: Investor report
Table 350: Banca Carige Group, select balance sheet items, €mm
FY 2009
Loans to public 22,786
Total Assets 36,299
Deposits 14,954
Short-term borrowings 1,963
Other short-term borrowing 1,528
Long-term borrowing 10,020
Equity 3,853
Source: Bloomberg
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The bank focuses mostly on retail banking, which Cover pool overview
accounts for 97% of its customer base and 69% of its We set out below some of the key cover pool
revenues, although it also has a strong presence in the characteristics:
SME market (24% of its revenues). UBI Banca is the
parent company of the group, and performs centralised Table 371: Covered bond characteristics
functions, while supporting the nine network banks along As at 30 June
with a wide range of product companies which specialise 2010
in corporate banking, consumer credit, asset S/M/F
management, factoring & leasing and life & non-life Covered Bond rating AAA/Aaa/AAA
Issuer rating A/A1/A+
bancassurance. Cover pool size (€) 5,724,995,550
Number of loans 79,159
Financial performance Avg loan (€) 72,323
We set out below some of the key financial performance WA LTV (in %) 44.1
metrics: Remaining tenor (mths) 193
WA seasoning (mths) 55
Table 368: UBI Banca, select income statement items, €mm
Floating rate (in %) 21.8
FY 2009 Fixed rate (in %) 78.2
Net interest income 2,506 Source: Investor report
Provisions for loan losses 865
NII less provisions 1,641
Table 372: Collateral pool LTV breakdown
Commissions & fee income 1,329 Current LTV ranges As at 30 June
Other operating income 255 2010
Non-interest expense 2,920 0-<=40% 43.8
Operating profit (loss) 383 >40%-<=50% 16.4
>50%-<=60% 14.8
PBT 519 >60%-<=70% 13.3
Taxes 237 >70%-<=80% 11.6
Net profit (loss) 270
Source: Investor report
Source: Bloomberg
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Table 373: UniCredit Group, select income statement items, €mm Table 377: Collateral pool LTV breakdown
FY 2009 Current LTV ranges As at 30 April
Net interest income 17,607 2010
Provisions for loan losses 8,152 0-<=40% 11.1
NII less provisions 9,455 >40%-<=50% 7.0
>50%-<=60% 9.4
Commissions & fee income 9,548 >60%-<=70% 16.9
Other operating income 848 >70%-<=80% 55.6
Non-interest expense 18,654 Source: Investor report
Operating profit (loss) 2,885
PBT 2,923
Taxes 888
Net profit (loss) 1,702
Source: Bloomberg
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Figure 94: Mortgage CB Issuance, €mm Figure 95: Mortgage CB outstanding, €mm
1,000 1,400
1,200
800
1,000
600 800
400 600
400
200
200
0 0
2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010
Source: J.P. Morgan Covered Bond Research Source: J.P. Morgan Covered Bond Research
Legislative snapshot
A brief description of the two covered bond structures so far has been included in the
respective issuer’s profile page.
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Figure 96: Korean real GDP growth, y-on-y, % Figure 97: Korean unemployment level, %
15 Real GDP grow th 6 Unemploy ment
10 5
4
5
3
0
2
-5 1
-10 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 98: Korean CPI and base rate, % Figure 99: Korean business survey index, #
6 Inflation Base rate
160 Business surv ey index
5 140
4 120
100
3
80
2 60
1 40
20
0
0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg
Source: Bloomberg
Figure 100: Korean house price growth, % Figure 101: Korean loans to households (KRWtn) and annual change
(RHS), %
15% House price grow th 800 Credit to HH (stock) Credit to HH (grow th) RHS 40%
700 35%
10%
600 30%
5% 500 25%
400 20%
0% 300 15%
-5% 200 10%
100 5%
-10% 0 0%
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
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Kookmin Bank Table 379: Kookmin Bank, select balance sheet items, KRWmm
FY 2009
Kookmin Bank is the largest bank in South Korea by
Loans 194,154,600
assets and market capitalisation. It has a strong domestic Total Assets 256,519,800
presence and also a small but growing international Deposits 170,385,900
presence in Asia. The core business remains lending to Short-term borrowings 13,843,060
Other short-term borrowings 13,134,670
individuals and SMEs: these constitute 52% and 34% of Long-term borrowings 37,985,060
its domestic currency loan book while residential Equity 19,342,560
mortgages account for 46% of the lending to households. Source: Bloomberg
As there is no specific covered bond legislation in Korea, Table 380: Kookmin Bank, select financial metrics
the issuer adopted a securitisation-like structure, whereby FY 2009
the issuer will make a loan to a guarantor, which will in NIM 2.7
turn purchase the assets from the issuer via a trust and ROA 0.2
ROE 3.5
guarantee the bonds in case of default. ROC 0.8
C:I 60.1
The collateral consists of mortgages and credit card Source: Bloomberg
receivables and an Asset Coverage Test (ACT) will be
carried out monthly. The asset percentage (AP) is set at Cover pool overview
85% for mortgages and 72% for credit cards. An We set out below some of the key cover pool
amortisation test will be also carried out if there is a non- characteristics:
cured breach of the ACT. If the credit card pool is
underperforming or in case of default of the issuer, the Table 381: Covered bond characteristics
revolving suspension test will end the revolving period As at 31 Jul 2010
and the structure will start trapping cash. S/M/F
Covered Bond rating AA/Aa1/-
Issuer rating A/A1/A
Financial performance
We set out below some of the key financial performance Cover pool size (KRW) 3,891,529,115,354
metrics: Outstanding liabilities (in KRW equivalent) 1,248,500,000,000
Mortgage pool
Table 378: Kookmin Bank, select income statement items, Aggregate amount outstanding (in KRW) 1,660,963,065,784
KRWmm Number of loans 17,438
Average loan balance (in KRW) 95,249,631
FY 2009 WA seasoning (mths) 41
Net interest income 6,288,438 WA LTV (in %) 46.5
Provisions for loan losses 2,207,853 >90days arrears (in %) 0.09
NII less provisions 4,080,585
Eligible credit card pool
Commissions & fee income 1,324,506 Aggregate amount outstanding (in KRW) 2,230,566,049,570
Other operating income 115,527 Number of account 1,879,462
Non-interest expense 5,088,616 Average account balance 1,186,828
Operating profit (loss) 703,027 >30 days arrears (in %) 0.79
Source: Investor report
PBT 660,471
Taxes 24,668
Net profit (loss) 635,803
Source: Bloomberg
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Korea Housing Finance Corporation Table 383: KHFC Bank, select balance sheet items, KRWmm
FY 2009
KHFC is a quasi-government financial institution
Loans 2,795,500
established with the aim of supplying long term housing Total Assets 3,443,840
finance. KHFC also provides mortgage guarantees to Short-term borrowings 260,000
prospective homebuyers and reverse mortgage products. Other short-term borrowings 185,000
Long-term borrowings 2,039,782
Equity 884,917
The company is a regular issuer of MBS and student loan Source: Bloomberg
ABS and has only issued their first covered bond (called
mortgage-backed bonds, MBB) in July, as permitted by Cover pool overview
Art. 31 of the KHFC Act. It also announced that it is We set out below some of the key cover pool
planning to issue $2bn of covered bonds annually starting characteristics:
in 2011.
Table 384: Covered bond characteristics
The underlying collateral is purchased from participating As at 30 Jun 2010
banks (SC First Bank Korea, Shinhan Bank, Woori Bank, S/M/F
Kookmin Bank, Korea Exchange Bank, Industrial Bank Covered Bond rating -/Aa3/-
of Korea and Hana Bank, although in this case only SC Issuer rating A/A2/-
First Bank, Shinhan and Woori participated) and is Cover pool size (KRW) 1,120,367,432,635
subject to an ACT (eligible assets at least equal to Outstanding liabilities (in KRW equivalent using 604,700,000,000
liabilities) and a portfolio yield test (interest received has issuance date FX rate)
Committed OC (in %) 19
to be greater than liabilities and expenses).
Number of loans 10,265
While there is no acceleration of the bonds in case of an Average loan balance (in KRW) 109,144,416
WA seasoning (mths) 11.7
issuer event of default, the bonds will accelerate if there WA LTV (in %) 49.1
is a covered bond event of default i.e. failure to pay WA indexed LTV (in %) 47.6
interest and/or principal as due. Interest only loans (in %) 37.7
PBT 23,245
Taxes -12,501
Net profit (loss) 35,746
Source: Bloomberg
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Source: ECBC. Latest data available displayed Source: ECBC. Latest data available displayed
Legislative snapshot
We set out below in Table 385 a snapshot of key covered bond attributes in
Luxembourg.
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PBT 22,688,091
Taxes 1,690,378
Net profit (loss) 20,997,713
Source: Dexia LdG Banque Annual Report 2009
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PBT -85,283,746
Taxes 301,225
Profit from write-down of capital 44,366,313
Net profit (loss) -41,218,658
Source: EEPK Annual Report 2009
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Table 394: Eurohypo SA, select income statement items, € Europe 57.5
North America 35.3
FY 2009 Asia 2.7
Net interest income 60,250,956 Supra 4.5
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PBT 7,955,000
Taxes 1,591,000
Net profit (loss) 6,364,000
Source: Nord/LB SA Annual Report 2009
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Figure 104: New Zealand real GDP growth, y-on-y, % Figure 105: New Zealand unemployment level, %
8 Real GDP grow th 8 Unemploy ment
6 7
6
4 5
2 4
0 3
2
-2
1
-4 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 106: New Zealand CPI and base rate, % Figure 107: New Zealand consumer confidence index, #
10 Inflation Base rate
140 Cons. Confidence
8 120
6 100
80
4
60
2 40
20
0
0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg
Source: Bloomberg
Figure 108: New Zealand house price growth, % Figure 109: New Zealand dwelling sales, #
15% House price grow th 12,000 Dw elling sales
10% 10,000
8,000
5%
6,000
0%
4,000
-5% 2,000
-10% 0
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
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Bank of New Zealand Table 408: Bank of New Zealand, select financial metrics
FY 2009
BNZ is the country's fourth largest bank and is a wholly
NIM 26.5
owned subsidiary of National Australia Bank. ROA -0.3
ROE -5.6
This is the first covered bond out of New Zealand; since ROC -2.4
C:I 47.0
there is no special covered bond law, the deal is governed
Source: Bloomberg
by New Zealand and English contract and common law.
BNZ will sell the mortgages to a guarantor, which will
Cover pool overview
purchase these using the proceeds of the covered bonds We set out below some of the key cover pool
issuance and will then guarantee the bonds. The characteristics:
bondholder will have dual recourse to the issuer and the
cover pool. This structure resembles that used in Canada, Table 409: Covered bond characteristics
the Netherlands and the UK.
As at 31 Jul
2010
The bonds will benefit from a defined cover pool with S/M/F
LTV restrictions, overcollateralisation and asset coverage Covered Bond rating -/Aaa/AAA
and amortisation tests (only the first 80% LTV will be Issuer rating AA/Aa2/AA
taken into account for inclusion in the cover pool and Cover pool size (NZD) 493,000,000
liabilities may not exceed 97% of the asset value at any Outstanding liabilities (in NZD) 425,000,000
time). Nominal overcollateralisation (in %) 16.0
Nominal asset percentage (in %) 86.2
Supporting asset percentage (in %) 88.3
Financial performance
We set out below some of the key financial performance Number of loans 3,539
Average loan size (in NZD) 139,305
metrics: WA residual maturity (yrs) 22.8
WA seasoning (mths) 27.0
Table 406: Bank of New Zealand, select income statement items, WA LTV (in %) 44.6
NZDmm Highest geographic exposure (in %) Auckland – 30.4
Interest only loans (in %) 5.9
FY 2009
Source: Fitch Ratings
Net interest income 1,351
Provisions for loan losses 0
NII less provisions 1,351
PBT 685
Taxes 866
Net profit (loss) -181
Source: Bloomberg
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Source: ECBC. Latest data available displayed Source: ECBC. Latest data available displayed
Legislative snapshot
We set out below in Table 410 a snapshot of key covered bond attributes in Norway.
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Figure 112: Norwegian real GDP growth, y-on-y % Figure 113: Norwegian unemployment level, %
8 5
Real GDP grow th Unemploy ment
6 4
4
3
2
2
0
-2 1
-4 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 114: Norwegian CPI and base rate % Figure 115: Norwegian consumer confidence, index
8 40
Inflation Base rate Consumer confidence
6 30
20
4
10
2
0
0
-10
-2 -20
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 116: Norwegian nominal house price growth, y-on-y % Figure 117: Norwegian building permits issued, index
20% 120
OECD HP nominal grow th OECD Building permits issued
15% 100
10% 80
5% 60
0% 40
-5% 20
-10% 0
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
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Table 411: DnB NOR Boligkreditt, select income statement items, Table 415: Collateral pool LTV breakdown
NOK000
Current LTV ranges As at 31 March
FY 2009 2010)
Net interest income 2,962,029 0-<=40% 37.3
>40%-<=50% 11.9
Other operating income -880,892 >50%-<=60% 13.5
Non-interest expense -801,404 >60%-<=70% 17.6
Operating profit (loss) 1,216,693 >70%-<=75% 13.9
>75% 5.9
Writedowns -63,040 Source: Investor report
Taxes -343,419
Net profit (loss) 873,273
Source: DnB Nor Boligkreditt annual report 2009
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PBT 116,771
Taxes 32,652
Net profit (loss) 84,119
Source: SpareBank 1 Boligkreditt annual report 2009
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Financial performance
We set out below some of the key financial performance
metrics:
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Source: ECBC. Latest data available displayed Source: ECBC. Latest data available displayed
Legislative snapshot
We set out below in Table 426 a snapshot of key covered bond attributes in Portugal.
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Figure 120: Portuguese real GDP growth, y-on-y, % Figure 121: Portuguese unemployment level, %
6 Real GDP grow th 12 Unemploy ment
4 10
2 8
0 6
-2 4
-4 2
-6 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 122: Portuguese CPI and base rate, % Figure 123: Portuguese consumer confidence, balance of survey
6 Inflation Base rate
5 0
4 -10
3 Cons. Confidence
2 -20
1 -30
0
-1 -40
-2 -50
-3
-60
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg
Source: Bloomberg
Figure 124: Portuguese house price growth, % Figure 125: Portuguese outstanding mortgages (€mm) and annual
6% House price grow th growth of mortgage stock, %
4% 120,000 Outstanding mortgages Grow th in o/s mortgages 20%
2% 100,000
0% 15%
80,000
-2%
60,000 10%
-4%
-6% 40,000
5%
-8% 20,000
Sep-05
Jan-06
Sep-06
Jan-07
Sep-07
Jan-08
Sep-08
Jan-09
Sep-09
Jan-10
May-06
May-07
May-08
May-09
May-10
0 0%
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Source: INE
Source: ECB
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PBT 296
Taxes 46
Net profit (loss) 225
Source: Bloomberg
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Banco Portugues de Investimento Table 434: Banco Portugues de Investimento, select financial
metrics
The BPI group, headed by Banco BPI, is a financial
FY 2009
services group offering services to both retail and NIM 1.4
corporate customers. It is the fourth largest private ROA 0.4
financial group with a market share of 10% in deposits ROE 10.5
ROC 1.7
and loans and more than fifteen percent in asset C:I 58.9
management. Core capital 8.6
Source: Bloomberg
The group's commercial bank (Banco BPI) serves 1.5mm
individuals, companies and institutions with over 700 Cover pool overview
branches. BPI also provides investment banking services We set out below some of the key cover pool
at the Iberian peninsula level and asset management characteristics:
products. The group is also active in Angola, where it has
a 20% market share via its controlling stake in Banco de Table 435: Mortgage covered bond characteristics
Fomento. As at 30 June
2010
Financial performance S/M/F
Covered Bond rating AAA/Aaa/AAA
We set out below some of the key financial performance Issuer rating A-/A1/A+
metrics:
Cover pool size (€) 4,198,690,970
Table 432: Banco Portugues de Investimento, select income Number of loans 78,549
Avg loan (€) 53,453
statement items, €mm
FY 2009 WA original LTV (in %) 65.3
Net interest income 589 WA current LTV (in %) 56.2
Provisions for loan losses 166 WA seasoning (mths) 59.0
NII less provisions 423 WA remaining term (mths) 162.3
Source: Investor report
Commissions & fee income 322
Other operating income 103
Table 436: Public sector covered bond characteristics
Non-interest expense 744
Operating profit (loss) 323 As at 30 June
2010
PBT 319 S/M/F
Taxes 45 Covered Bond rating AAA/-/-
Net profit (loss) 175 Issuer rating A-/A1/A+
Source: Bloomberg
Cover pool size (€) 294,472,961
Number of loans 459
Table 433: Banco Portugues de Investimento, select balance
Avg loan (€) 641,553
sheet items, €mm
FY 2009 Top 10 borrowers (in %) 60.2
Loans to public 29,956 Top 50 borrowers (in %) 86.8
Total Assets 47,449 WA seasoning (mths) 31.3
Deposits 22,488 WA remaining term (mths) 92.3
Short-term borrowings 7,488 Source: Investor report
Other short-term borrowing 2,637
Long-term borrowing 9,736
Equity 2,303
Source: Bloomberg
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PBT 44
Taxes 0
Net profit (loss) 44
Source: Bloomberg
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Source: ECBC. Latest data available displayed Source: ECBC. Latest data available displayed
Legislative snapshot
We set out below in Table 449 a snapshot of key covered bond attributes for
standalone programmes in Spain. In Table 450 we set out a similar overview of the
multi-cedula framework.
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Figure 128: Spanish real GDP growth, y-on-y, % Figure 129: Spanish unemployment level, %
8 Real GDP grow th 25 Unemploy ment
6
20
4
2 15
0 10
-2
5
-4
-6 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 130: Spanish CPI and base rate, % Figure 131: Spanish consumer confidence, balance of survey
6 Inflation Base rate
10 Cons. Confidence
5
4 0
3 -10
2
-20
1
0 -30
-1 -40
-2
-50
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg
Source: Bloomberg
Figure 132: Spanish house price growth, % Figure 133: Spanish mortgage approvals, #
20% House price grow th 140,000 Mortgage approv als
15% 120,000
10% 100,000
80,000
5%
60,000
0%
40,000
-5% 20,000
-10% 0
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
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Table 474: Banco Santander, select financial metrics Average exposure (in €) 6,291,344
Exposure to 10 largest borrowers (in %) 48.3
FY 2009 Highest regional exposure (in %) Andalusia – 16.6
NIM 2.8
ROA 0.8 Borrower type
ROE 14.2 Direct claim against region/municipality/federal state 87.7
ROC 2.3 Claim with guarantee of region/municipality 12.3
C:I 47.0 Source: Moody’s
Core capital 10.1
Source: Bloomberg
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Table 509: Ibercaja, select balance sheet items, €mm Commercial pool overview
FY 2009 Pool balance (in €) 7,598,201,398
Average loan (in €) 263,005
Real estate loans 27,532
WA seasoning (mths) 36.3
Loans to public 33,356
WA current LTV (in %) 58.1
Total Assets 44,691
Highest regional exposure (in %) Aragon – 22.8
Deposits 28,205
Short-term borrowings 1,579
Property type
Other short-term borrowing 144
RED 45
Long-term borrowing 7,207
Land 25
Equity 2,704
Retail 6
Source: Bloomberg Industrial 4
Other 21
Table 510: Ibercaja, select financial metrics
LTV breakdown
FY 2009 0-40% LTV 18.7
ROA 0.3 41-50% LTV 12.0
ROE 5.5 51-60% LTV 18.2
ROC 1.7 61-70% LTV 21.6
C:I 54.1 71-80% LTV 21.0
Core Capital 8.8 >80% LTV 8.5
Source: Bloomberg Source: Moody’s
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PBT 250
Taxes 99
Net profit (loss) 106
Source: Bloomberg
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Largest contributors part the restructuring of the cajas system in 2010 but
maintained its brand (see next section).
Participation in multi-cedulas programmes is quite
widespread, with 56 cajas contributing to issuance and no
Ibercaja, Caixa Penedes and Caixa Galicia
individual lender accounting for more than 7% of total
Each of these contribute to around 3% of the total
collateral.
outstanding multi-cedulas volumes. While Caixa Penedes
and Ibercaja are independent lenders, Caixa Galicia is
Below is a review of the top contributors to multi-cedulas
now part of the Breogan group, following the
collateral pools:
restructuring of the Spanish cajas system (see below).
Caja Madrid
New groups
Caja Madrid is the fourth largest Spanish financial group
The Spanish banking system is undergoing a phase of
and offers a wide range of products and services for
significant change and restructuring. The past strong
retail, business and private banking clients (see
economic growth and the focus of these regional lenders
individual profile for more details). Caja Madrid
on the real estate sector have altered their traditional
contributes approximately 7% of overall multi-cedula
banking model and made them over-reliant on the
collateral, mostly through recent Cedulas TDA issues.
wholesale markets. As the Spanish economy and housing
market contracted over the past three years, the cajas
Caja Ahorros Mediterraneo (CAM)
system faced significant funding and capital problems
CAM is one of the oldest cajas, with a 133 years history
(effectively, the capital base of these institutions is the
and over 1,060 branches. After the restructuring of the
volume of retained earnings, with very little or no access
Spanish cajas system in the summer of 2010, it merged
to equity-like instruments, such as non-voting shares
with Caja Asturias, Caja Santander y Cantabria and Caja
called 'cuotas participativas', which have had limited
Extremadura into the new Base group (see next section).
success). One of the solutions taken to curtail difficulties
Overall, it accounts for around 6% of all outstanding
in a number of the savings banks was to integrate them in
multi-cedula collateral. It is a particularly frequent
the form of mergers or via the creation of institutional
contributor to AyT Cedulas Cajas Global and AyT
protection systems (or IPS, where a central common
Cedulas Cajas, although it provides on average 15% of
institution is created and charged with taking key
the collateral in four Cedulas TDA issues.
management decisions for the cajas that took part to the
agreement - this is fundamentally the same as a merger,
Cajastur
as the parties will support each other in terms of solvency
Cajastur, which took over Caja Castilla La Mancha as the
and liquidity and will share profits).
latter tried to avoid bankruptcy, accounts for almost 5%
of outstanding multi-cedula collateral (3.6% is from
These measures have significantly changed the make-up
CCM and 1.2% from Cajastur). Together with CAM,
of the sector: of the 45 Spanish cajas, 39 are involved in
Caja Santander y Cantabria and Caja Extremadura, it is
merger/IPS processes, resulting in 12 new institutions. Of
now part of the Base group (see next section).
these, 7 requested aid from the FROB (Fund for the
Orderly Restructuring of the Banking system), totalling
Unicaja
€10.2bn. The six institutions not involved in the
Unicaja is the result of the merger, throughout the years,
aggregation account for just 8% of the caja sector's
of several smaller cajas: Ronda, Cadiz, Almeria, Malaga,
assets.
Antequera and Jaen. It operates through almost 1,000
branches in 17 Spanish provinces and a few foreign
Below are quick descriptions of the new groups and their
offices. Unicaja accounts for 4.5% of all multi-cedulas
contributions to the outstanding multi-cedulas.
issuance and is also a stand-alone issuer.
Júpiter
Caja Sol
This new caja has been formed by the merger of Caja
Caja Sol is the result of the merger in 2007 of a number
Madrid, Bancaja, Caixa Laietana, Caja Insular de
of smaller lenders. It contributes to around 4% of all
Canarias, Caja Ávila, Caja Segovia and Caja La Rioja.
outstanding multi-cedula collateral and has a relatively
evenly spread presence throughout the different
programmes. Caja Sol merged with Caja Guadalajara as
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The group accounts for 17% of outstanding multi-cedula widespread across programmes but only totals 4% of
collateral, with a particularly significant contribution to outstanding volumes.
the TDA programmes.
Unnim
Caixa The result of the merger of Caixa Sabadell, Caixa
Merger of La Caixa and Caixa d’Estalvis de Girona. Terrassa and Caixa Manlleu, Unnim's contribution to
Very limited participation in multi-cedulas programmes. multi-cedulas amounts to 5%.
Base Caja3
Formed by the merger of CAM, Caja Asturias, Caja Caja Circulo, Caja Badajoz and Caja Aragon joined
Santander y Cantabria and Caja Extremadura. It is a forces under the new Caja3 brand, a small participant in
relatively large contributor to a number of multi-cedulas, multi-cedulas programmes.
in particular Ayt programmes (Ayt Cedulas Cajas, AyT
Cedulas Territoriales, AyT Cedulas Cajas Globales); in Deal overviews
total Base contributes the second largest share, 13%, to
The following tables summarise the contribution to each
the outstanding amount of multi-cedula collateral.
multi-cedula of the individual cajas in Table 525 and
Table 526 (where this split was made available) and of
Diada
the new groups (Table 527).
Caixa Catalunya and Caixa Manresa merged with Caixa
Tarragona to form Diada, whose largest contribution to
any multi-cedulas programme is a 6% overall
participation in the TDA Cedulas series.
Breogán
Breogán came to life after the merger of Caja Galicia and
Caixanova. Despite the small number of lenders
included, it is a relatively large contributor to AyT series
of multi-cedulas.
Mare Nostrum
Caja Murcia, Caixa Penedes, Sa Nostra and Caja
Granada are the original cajas joined under the new
brand. The group is a regular contributor to multi-cedulas
issuance and accounts for 10% of the total outstanding
bonds.
Espiga
The new Caja Espiga is the product of the merger of Caja
Duero and Caja España. Jointly, these two lenders
contribute to 6% of outstanding bonds, with particular
concentration in the AyT Cedulas Territoriales
programme.
Banca Civica
One of the mergers that did not require any financial aid,
Banca Civica is formed by Caja Navarra, Caja Burgos
and Caja Canarias. These lenders regularly issue via
multi-cedulas, mostly out of AyT platforms.
Caja Sol
Caja Sol and Caja Guadalajara merged into Caja Sol,
whose contributions to multi-cedulas issuance is rather
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Table 525: Multi-cedula contributors by pre-merger institutions (Bancaja to Caixa Tarragona), % of collateral
Caixa Sabadell
Caixa Penedés
Caixa Laietana
Caixa Cataluña
Banco Popular
Caixa Pollenca
Banco Espirito
Banco Popular
Caixa Manresa
Banco Gallego
C.C.O. Burgos
Caja Granada
Caixa Manlleu
Caja La Rioja
Banco Pastor
Guipuzcoano
Banca March
Caixa Galicia
Caixa Girona
Guadalajara
Hipotecario
Tarragona
Bankpime
(Cajastur)
Ontinyent
Bankinter
Banco de
Bancaja
Valencia
Espanol
Banco
Santo
(BPE)
Caixa
Caixa
CCM
Caja
BBK
CAI
AyT Cedulas Cajas I 1 4 1 7 7 1 1 7
AyT Cedulas Cajas III 4 6 4 4 4 5 1 4
AyT Cedulas Cajas IV 3 3 3 2 4 10 1 1 2
AyT Cedulas Cajas V 6 5 2 5 10 2 5 2
AyT Cedulas Cajas VI 10 5 3 1 9 3 2 1
AyT Cedulas Cajas VII 6 14 9 3 3
AyT Cedulas Cajas VIII 2 10 2 1 1 7 10 3 1 0 2
AyT Cedulas Cajas IX 6 3 5 2 0 6 4 4 2 2 1
AyT Cedulas Cajas X 5 5 6 4 21
CEDULAS TDA 1 17
CEDULAS TDA 2 8 3 15 4
CEDULAS TDA 3 15 15 3 4 4
CEDULAS TDA 5 14 8 6 5
CEDULAS TDA 6 8 20 2 4
CEDULAS TDA 7 13 9 2 5
CEDULAS TDA 9 16 3 16 5
CEDULAS TDA 10 16 6 16 10
CEDULAS TDA 11 50 25
CEDULAS TDA 12 22 9 22 9
CEDULAS TDA 13 23 1 14 2 5 23 2
CEDULAS TDA 14
CEDULAS TDA 15 1 10 3 24 1 0
CEDULAS TDA 17 15 15 26
CEDULAS TDA 18 17 17 3 25
CEDULAS TDA 19 33 33
CEDULAS TDA 20
IM Cedulas 2 12 17 27 10
IM Cedulas 3 9 8 8 5
IM Cedulas 4 24 10 5
IM Cedulas 5 20 8 4
IM Cedulas M1 12 6
IM Cedulas 7 20
IM Cedulas 9 20 6
IM Cedulas 10 19 8 15 8 15
IM Cedulas 14
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Caixa Sabadell
Caixa Penedés
Caixa Laietana
Caixa Cataluña
Banco Popular
Caixa Pollenca
Banco Espirito
Banco Popular
Caixa Manresa
Banco Gallego
C.C.O. Burgos
Caja Granada
Caixa Manlleu
Caja La Rioja
Banco Pastor
Guipuzcoano
Banca March
Caixa Galicia
Caixa Girona
Guadalajara
Hipotecario
Tarragona
Bankpime
(Cajastur)
Ontinyent
Bankinter
Banco de
Bancaja
Valencia
Espanol
Banco
Santo
(BPE)
Caixa
Caixa
CCM
Caja
BBK
CAI
Ayt Cedulas Territoriales
11 23 15
Cajas 2
Ayt Cedulas Territoriales
11 22
Cajas 3
Ayt Cedulas Territoriales
5 4
Cajas 4
IM CEDULAS GBP 1 85 15
CEDULAS GBP 2 86 14
CEDULAS GBP 3 87 14
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Caixa Sabadell
Caixa Penedés
Caixa Laietana
Caixa Cataluña
Banco Popular
Caixa Pollenca
Banco Espirito
Banco Popular
Caixa Manresa
Banco Gallego
C.C.O. Burgos
Caja Granada
Caixa Manlleu
Caja La Rioja
Banco Pastor
Guipuzcoano
Banca March
Caixa Galicia
Caixa Girona
Guadalajara
Hipotecario
Tarragona
Bankpime
(Cajastur)
Ontinyent
Bankinter
Banco de
Bancaja
Valencia
Espanol
Banco
Santo
(BPE)
Caixa
Caixa
CCM
Caja
BBK
CAI
AyT Cedulas Cajas Global
13
- Series 18
AyT Cedulas Cajas Global
10 8 7 6 6 12
- Series 19
AyT Cedulas Cajas Global
7 2 5 2 5 1 2 3 5
- Series 20
AyT Cedulas Cajas Global
7 2 5 2 5 1 2 3 5
- Series 21
AyT Cedulas Cajas Global
4 6 2 9 2 1 6 3 2 2 3
- Series 22
AyT Cedulas Cajas Global
7 9 2 4 7 17 9 0
- Series 23
AyT Cedulas Cajas Global
10 14 7
- Series 24
AyT Cedulas Cajas Global
31
- Series 25
AyT Cedulas Cajas Global
40
- Series 26
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Table 526: Multi-cedula contributors by pre-merger institutions (Caixa Terrassa to Unicaja), % of collateral
Caixa Terrassa
Caja Insular de
Caja Cantabria
Caja Municipal
Caja Badajoz
Caja Segovia
Caja Navarra
Extremadura
Caja General
Caja Laboral
Caja España
de Canarias
Caja Madrid
Caja Murcia
Caja Duero
Caixanova
de Burgos
Ipar Kutxa
Caja Avila
Caja Jaen
Sa Nostra
Caja Vital
Canarias
Total o/s
Cajastur
Cajamar
Ibercaja
Cajasur
amount
Unicaja
Cajasol
Kutxa
CAM
Caja
AyT Cedulas Cajas I 15 1 15 9 7 15 7 2,048
AyT Cedulas Cajas III 9 4 1 3 4 3 7 5 9 9 9 7 3,500
AyT Cedulas Cajas IV 2 8 2 2 2 3 3 4 9 3 7 5 8 8 7 3,800
AyT Cedulas Cajas V 7 6 3 3 5 3 1 5 5 3 6 10 5 3,100
AyT Cedulas Cajas VI 3 6 3 6 3 2 5 5 9 3 3 5 3 3 8 3,300
AyT Cedulas Cajas VII 1 11 9 9 24 6 6 1,750
AyT Cedulas Cajas VIII 2 1 2 5 2 4 1 2 4 7 12 7 4 5 4,100
AyT Cedulas Cajas IX 3 4 4 4 3 2 5 2 1 9 4 10 8 3 4 5,000
AyT Cedulas Cajas X 3 2 2 7 3 6 3 6 13 10 4 3,900
IM Cedulas 2 34 1,475
IM Cedulas 3 5 19 47 1,060
IM Cedulas 4 7 24 7 2 10 6 5 2,075
IM Cedulas 5 8 12 40 8 1,250
IM Cedulas M1 6 30 9 6 30 1,655
IM Cedulas 7 8 42 22 8 1,250
IM Cedulas 9 4 8 24 39 1,275
IM Cedulas 10 23 12 1,300
IM Cedulas 14 25 17 33 25 1,200
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Caixa Terrassa
Caja Insular de
Caja Cantabria
Caja Municipal
Caja Badajoz
Caja Segovia
Caja Navarra
Extremadura
Caja General
Caja Laboral
Caja España
de Canarias
Caja Madrid
Caja Murcia
Caja Duero
Caixanova
de Burgos
Ipar Kutxa
Caja Avila
Caja Jaen
Sa Nostra
Caja Vital
Canarias
Total o/s
Cajastur
Cajamar
Ibercaja
Cajasur
amount
Unicaja
Cajasol
Kutxa
CAM
Caja
Ayt Cedulas Territoriales
8 8 3 8 23 3
Cajas 2 665
Ayt Cedulas Territoriales
16 17 11 17 7
Cajas 3 450
Ayt Cedulas Territoriales
9 16 10 10 2 7 16 10 10
Cajas 4 965
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Caixa Terrassa
Caja Insular de
Caja Cantabria
Caja Municipal
Caja Badajoz
Caja Segovia
Caja Navarra
Extremadura
Caja General
Caja Laboral
Caja España
de Canarias
Caja Madrid
Caja Murcia
Caja Duero
Caixanova
de Burgos
Ipar Kutxa
Caja Avila
Caja Jaen
Sa Nostra
Caja Vital
Canarias
Total o/s
Cajastur
Cajamar
Ibercaja
Cajasur
amount
Unicaja
Cajasol
Kutxa
CAM
Caja
AyT Cedulas Cajas Global 750
13 27 13 7 27
- Series 18
AyT Cedulas Cajas Global 4,200
5 7 5 5 2 4 7 5 10 2
- Series 19
AyT Cedulas Cajas Global 4,105
3 4 2 4 2 2 2 1 6 4 12 1 1 5 5 4 5 3
- Series 20
AyT Cedulas Cajas Global 4,105
3 4 2 4 2 2 2 1 6 4 12 1 1 5 5 4 5 3
- Series 21
AyT Cedulas Cajas Global 2,323
6 2 3 3 5 4 4 3 4 5 9 4 6
- Series 22
AyT Cedulas Cajas Global 2,295
3 4 10 7 13 9
- Series 23
AyT Cedulas Cajas Global 1,450
14 14 14 7 10 10
- Series 24
AyT Cedulas Cajas Global 500
15 15 23 15
- Series 25
AyT Cedulas Cajas Global 990
9 15 25 10
- Series 26
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Mare Nostrum
Banca Civica
Breogan
Caja Sol
Jupiter
Espiga
Unnim
Caja 3
Diada
Caixa
Other
Base
AyT Cedulas Cajas I 16 22 10 15 6 16 7 8
AyT Cedulas Cajas III 3 16 4 5 7 4 4 4 16 14 22
AyT Cedulas Cajas IV 13 9 18 1 2 7 2 9 9 7 24
AyT Cedulas Cajas V 15 13 16 2 6 7 3 5 6 12 14
AyT Cedulas Cajas VI 20 9 3 7 19 8 6 28
AyT Cedulas Cajas VII 9 33 6 11 7 14 20
AyT Cedulas Cajas VIII 2 15 2 3 2 12 5 13 14 4 28
AyT Cedulas Cajas IX 5 16 8 2 4 9 8 9 13 10 17
AyT Cedulas Cajas X 6 13 21 6 10 10 10 3 21
CEDULAS TDA 1 17 34 17 31
CEDULAS TDA 2 8 10 19 10 9 12 33
CEDULAS TDA 3 8 15 3 4 4 15 15 6 31
CEDULAS TDA 5 28 5 7 14 46
CEDULAS TDA 6 20 7 4 23 8 6 32
CEDULAS TDA 7 9 5 5 17 30 5 29
CEDULAS TDA 9 2 10 5 10 32 16 3 24
CEDULAS TDA 10 2 6 10 16 29 3 35
CEDULAS TDA 11 25 75
CEDULAS TDA 12 9 22 17 43 8
CEDULAS TDA 13 5 5 2 23 48 14 2
CEDULAS TDA 14 80 20 0
CEDULAS TDA 15 19 24 5 11 2 10 28
CEDULAS TDA 17 26 15 3 56
CEDULAS TDA 18 28 25 4 34 6 3
CEDULAS TDA 19 33 67
CEDULAS TDA 20 2 98 0
IM Cedulas 2 27 12 61
IM Cedulas 3 5 12 9 74
IM Cedulas 4 2 24 6 5 7 24 7 25
IM Cedulas 5 4 12 8 8 8 60
IM Cedulas M1 6 6 21 67
IM Cedulas 7 22 8 70
IM Cedulas 9 8 4 88
IM Cedulas 10 8 12 15 23 42
IM Cedulas 14 17 25 33 25
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Mare Nostrum
Banca Civica
Breogan
Caja Sol
Jupiter
Espiga
Unnim
Caja 3
Diada
Caixa
Other
Base
Ayt Cedulas Territoriales Cajas 3 11 16 22 17 18 17
Ayt Cedulas Territoriales Cajas 4 17 10 9 16 4 26 2 5 10
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20,000 60,000
40,000
10,000
20,000
0 0
2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
Source: ECBC. Latest data available displayed Source: ECBC. Latest data available displayed
Legislative snapshot
We set out below in Table 528 a snapshot of key covered bond attributes in Sweden.
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Figure 136: Swedish real GDP growth, y-on-y % Figure 137: Swedish unemployment level, %
8 Real GDP grow th 10 Unemploy ment
6
8
4
2 6
0
-2 4
-4
2
-6
-8 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 138: Swedish CPI and base rate % Figure 139: Swedish consumer confidence, index
6 Inflation Base rate 40 Cons. Confidence
5 30
4 20
3
10
2
0
1
0 -10
-1 -20
-2 -30
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 140: Swedish nominal house price growth, y-on-y % Figure 141: Swedish building permits issued, #
0 OECD HP nominal grow th 25000 Dw elling starts
20000
0
15000
0
10000
0
5000
0 0
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
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gareth.davies@jpmorgan.com
Länsförsäkringar Hypotek is one of the largest retail Cover pool (SEK bn) 68
mortgage institutions in Sweden, with lending of some Substitute assets (SEKbn) 15
Over-collateralisation 14.6%
SEK70bn as at March 2010, predominantly funded
through the issuance of covered bonds. Average LTV 60.0%
Number of loans 85,069
Average loan size (SEK) 369,000
Financial performance Single family houses 80%
We set out below some of the key financial performance Tenant-owned apartments 19%
metrics: Leisure homes 1%
Source: Investor presentation
Table 534: LF Hypotek, select income statement items, SEKmm
2009
Net Interest Income 285.4
Net Other Income -83.9
Total Operating Income 201.5
Total Operating Expenses -66.1
Write-Downs 5.4
Operating Profit 140.8
Net Profit 99.9
Source: LF Hypotek annual report 2009
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corporates.
Cover pool overview
The purpose of the lending is primarily to finance We set out below some of the key cover pool
properties, agriculture and municipal activities, with a characteristics:
central emphasis on housing finance. Collateral consists
Table 543: Covered bond characteristics
predominantly of mortgages on residential property,
tenant-owned apartments or municipal guarantees. As at 31 March
Covered bond rating AAA/Aaa/-
Nordea also issues covered bonds through its Danish Issuer rating AA-/Aa2/AA-
subsidiary (Nordea Realkredit).
Cover pool (SEK bn) 359.2
Financial performance Substitute assets (SEKbn) n/a
Over-collateralisation 17.2%
We set out below some of the key financial performance
metrics: Average LTV 52.1%
Number of loans 683,437
Average loan size (SEK) n/a
Table 539: Nordea Hypotek, select income statement items,
Single family houses 47.0%
SEKmm Tenant owned units 18.2%
2009 Multi family houses 16.8%
Net Interest Income 3,141 Other houses, agricultural, commercial, public sector 18.0%
Net Other Income 46 Source: Investor presentation
Total Operating Income 3,187
Total Operating Expenses -552
Write-Downs -61
Operating Profit 2,574
Net Profit 1,895
Source: Nordea Hypotek annual report 2009
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Financial performance
We set out below some of the key financial performance
metrics:
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A second variety of Swiss covered bonds has been issued in the international capital
markets by UBS, using structured covered bond technology similar to that deployed
by UK and Dutch issuers. This type of obligation is covered bond uses contract as
opposed to statute law to define its terms.
Structure of Issuer Both PBB and PBZ use the proceeds raised through pfandbrief issuance and pass
them on to the member institutions who originated the loans. The underlying
mortgages remain on the member bank’s balance sheets, but PBB and PBZ receive a
lien on the eligible cover assets.
With respect to UBS’ programme, eligible assets are defined in the programme terms.
This includes residential mortgages, with a maximum LTV of 80%. Substitute assets
are capped at 15%
Valuation Individual market values
ALM matching Eligible assets must be greater than liabilities at all times on a nominal and NPV
basis. Derivatives can be used to help meet cashflow requirements
Over-collateralisation Under the PfG, principal and interest payments must be covered at all times by an
equivalent amount of loans.
For UBS, bankruptcy will result in the transfer of the cover pool to the Guarantor
Compliance with EU For pfandbrief, the bonds are UCITS but not CRD compliant
legislation
For UBS, the bonds are neither UCITS or CRD compliant
Source: ECBC, national legislation
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UK covered bonds
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UK Covered Bonds
Market size
We provide an overview of market issuance trends and outstanding volumes of UK
covered bonds in Figure 142 and Figure 143 respectively.
0 0
2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
Source: ECBC. Latest data available displayed Source: ECBC. Latest data available displayed
Legislative snapshot
We set out below in Table 569 a snapshot of key covered bond attributes in the UK.
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UK macro background
Figure 144: UK real GDP growth, y-on-y, % Figure 147: UK unemployment level, %
6 Real GDP grow th
10
4
8
2
0 6
-2
4
-4
Unemploy ment
-6 2
-8 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 145: UK CPI and base rate, % Figure 148: UK consumer confidence, balance of survey
7 Inflation Base rate Cons. Confidence
10
6
5 0
4 -10
3
-20
2
1 -30
0 -40
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 146: UK house price growth, y-on-y, % Figure 149: UK mortgage loan approvals, #
30 Nationw ide house price grow th 100000 BBA Mortgage loan approv als
20 80000
10 60000
0 40000
-10 20000
-20 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
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The Group is constructed around two broad divisions. Cover pool overview
Barclays Global Retail and Commercial Banking We set out below some of the key cover pool
(GRCB) operations comprises six business units characteristics:
including UK retail banking, Barclays commercial bank,
Barclaycard, Emerging markets, Western Europe and Table 573: Select covered bond terms
Absa, its South African platform. Investment Banking Terms
and Investment Management (IBIM) includes Barclays Asset Coverage Test (ACT)
Capital (including the acquired segments of Lehman <3m in arrears 0.75
Brothers), Barclays Global Investors and Barclays 3m+ true balance & LTV<75% 0.40
3m+ true balance & LTV>75% 0.25
Wealth.
Asset percentage 94.0%
Barclays plc issued its first UK covered bond in Max. subs assets n/a
September 2009, and has issued two subsequent deals in
Reps & warranties
2010. Min. current payments 1
Min. margin n/a
Financial performance Max. balance 1,500,000
Max. term (yr) 50
We set out below some of the key financial performance BTL eligible? Y
metrics: Source: J.P. Morgan Covered Bond Research, Offering Circulars
Table 570: Key profit & loss figures, £mm Table 574: Cover pool characteristics
2006 2007 2008 2009 Characteristic
Net interest income 10,105 10,826 12,149 11,974 Ratings S/M/F
Provisions for loan losses 2,154 2,795 5,419 8,071 Covered bond rating AAA/Aaa/AAA
NII less provisions 7,951 8,031 6,730 3,903 Issuer rating A+/Aa3/AA-
Commissions & fee income 8,005 8,678 7,573 9,946 Fitch D:factor 18.60%
Other operating income 699 707 1,220 1,730 Moody's TPI Probable
Non-interest expense 13,913 14,169 14,479 18,210
Operating profit (loss) 6,356 7,006 2,383 4,370 Cover pool Jun-10
PBT 7,136 7,076 5,136 4,585 Total pool 13,274,386,585
Taxes 1,941 1,981 453 1,074 Asset type:
Net profit (loss) 4,571 4,417 4,382 9,393 Mortgages 13,274,386,585
Source: Bloomberg Cash n/a
Bonds outstanding 4,055,181,690
Table 571: Key balance sheet figures, £mm
# mortgages 92,470
2006 2007 2008 2009 Avg loan balance 143,553
Real Estate Loans 16,528 17,018 22,155 23,468 WA Indexed LTV 60.9%
Commercial Loans 145,477 182,319 261,680 220,255 LTV>80% 13.9%
Consumer Loans 130,012 153,622 188,471 194,709 LTV>90% 4.1%
Other Loans 10,142 13,226 18,187 15,995 LTV>100% n/a
Loans 282,300 345,398 461,815 420,224
Total Assets 996,787 1,227,361 2,052,980 1,378,929 Asset seasoning 21.9
Deposits 256,754 294,987 335,505 322,429
Short-term borrowings 161,819 178,166 221,659 154,912 Current asset percentage 77.3%
Other ST borrowings 368,559 498,323 223,192 155,832 Amt of credit support n/a
Long-term borrowings 42,812 50,758 72,660 83,252
Equity 27,390 32,476 47,411 58,478 Source: J.P. Morgan Covered Bond Research, Investor Reports, Rating Agencies
Source: Bloomberg
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Approval of State Aid support was received from the EC Table 578: Select covered bond terms
on 25th January 2010. This extends the HM Treasury Terms
guarantee on Bradbi's covered bonds until institutional Asset Coverage Test (ACT)
run-off is complete. <3m in arrears 0.75
3m+ true balance & LTV<75% 0.40
3m+ true balance & LTV>75% 0.40
Bradford & Bingley is set to be integrated with Northern
Rock (Asset Management) plc, under a single holding Asset percentage 91.0%
company. The companies will remain separate legal Max. subs assets 10.0%
entities, with their own balance sheets, liabilities and
government support arrangements. Reps & warranties
Min. current payments 2
Min. margin
Financial performance Max. balance 1,000,000
We set out below some of the key financial performance Max. term (yr) 50
metrics: BTL eligible? Y
Source: J.P. Morgan Covered Bond Research, Offering Circulars
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Bank of Scotland has two distributed covered bond Table 588: Select covered bond terms
programmes, one backed by residential mortgages (BoS Terms BoS SH BoS Resi L Resi
Resi) and another backed by social housing (BoS SH) Asset Coverage Test (ACT)
collateral. Lloyds TSB also has its own CB programme, <3m in arrears n/a 0.60 0.75
backed by residential mortgages (L Resi). 3m+ true balance & LTV<75% n/a 0.60 0.40
3m+ true balance & LTV>75% n/a 0.60 0.25
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US covered bonds
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US Covered Bonds
Market size
We provide an overview of market issuance trends and outstanding volumes of US
covered bonds in Figure 150 and Figure 151 respectively.
Figure 150: Mortgage CB Issuance, €mm Figure 151: Mortgage CB outstanding, €mm
10,000 14,000
12,000
8,000
10,000
6,000 8,000
4,000 6,000
4,000
2,000
2,000
0 0
2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
Source: ECBC. Latest data available displayed Source: ECBC. Latest data available displayed
Legislative snapshot
We set out below in Table 615 a snapshot of key covered bond attributes in the USA.
The legislature is currently looking to introduce a specific covered bond framework
in the US.
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US macro background
Figure 152: USA real GDP growth, y-on-y, % Figure 153: USA unemployment level, %
6 Real GDP grow th 12 Unemploy ment
4 10
2 8
0 6
-2 4
-4 2
-6 0
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg Source: Bloomberg
Figure 154: USA CPI and base rate, % Figure 155: USA consumer confidence index, #
8 Inflation Base rate
140 Cons. Confidence
6 120
4 100
80
2
60
0 40
20
-2
0
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: Bloomberg
Source: Bloomberg
Figure 156: USA house price growth, % Figure 157: USA existing home sales (mm), and housing starts index
(RHS), 000s
15% House price grow th 8 Ex isting home sales New home sales (RHS) 1600
7 1400
10%
6 1200
5% 5 1000
4 800
0% 3 600
-5% 2 400
1 200
-10% 0 0
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
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Financial performance
We set out below some of the key financial performance
metrics:
PBT 4,360
Taxes -1,916
Net profit (loss) 6,276
Source: Bloomberg
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