Germany

While Frankfurt vies with Paris to be Europe’s financial centre, it remains eclipsed by London. As Chris Wright reports, the only possible way it can usurp London’s position is if the UK were to quit the European Union. And although its political relationship with Europe is fractious, the UK knows it has too much to lose to let that happen.

The impressive stability of German real estate is drawing an expanding equity investor base but the onerous requirements of listing mean supply will likely continue to lag demand. Lucy Fitzgeorge-Parker reports.

High redemptions, combined with deleveraging and a drive towards deposit funding has put net first quarter covered bond supply in 2013 on track to hit record lows, said Barclays analysts on Thursday.

Overcollateralisation should not be the main factor when rating agencies assess covered bonds, according to Commerzbank.

Core and peripheral borrowers are waiting for a better market before bringing benchmark covered bonds. Safe-haven names are traditionally first to take advantage of returning stability. But southern European borrowers, which offer higher yields, juicers spreads and are less flexible over pricing, will find execution easier, said bankers.

Trading in Spanish and Italian covered bonds was relatively stable against asset swaps on Monday, while they tightened versus their domestic sovereign bonds, following the news that Cyprus faces a bail-out from the European Union.

Vorarlberger Landes- und Hypothekenbank (Vorarlberger Hypobank) has picked banks to manage its first euro benchmark covered bond, which it plans to launch in mid-April, a funding official at the issuer told The Cover.

Deutsche Pfandbriefbank (Pbb) got the covered bond market off to a strong start on Monday, shrugging off weakening sentiment to launch a seven year mortgage backed Pfandbrief.

HSH Nordbank became the second German borrower of the year to fund SME loans with a covered bond this week, after using a KfW guarantee to turn the loans into eligible public sector collateral. As German Pfandbrief law bars unguaranteed SME loans, this approach offers an alternative to structured issuance. But bankers and analysts are divided over its viability.

HSH Nordbank closed books on a three year public sector Pfandbrief on Wednesday, easily finding enough demand for a €500m no grow transaction, despite its exposure to the shipping industry, which put some buyers off, said bankers.

Overcollateralisation has a big influence on the ratings of covered bond but it is not a good guide to their resilience and rating stability, according to DZ Bank.

When is a covered bond not a covered bond? Commerzbank’s controversial SME structured deal generated much emotion at the IMN covered bond conference in London this week. In a show of hands, almost all delegates thought the issuer should not have been able to market it as a covered bond. The Cover looks into the reasons for their disapproval and considers the arguments for the defence. Whoever is right, Commerz has given the market a new headache.