Germany

A commitment to spin off Eurohypo is expected to be a condition of the European Commission's approval of the German government's bailout of Commerzbank, but covered bond analysts have questioned whether the leading covered bond issuer is likely to attract a takeover bid or be able to go it alone.

Moody’s yesterday (Thursday) cut HSH Nordbank’s rating from A1 to A2, on stable outlook, because it expects ongoing core credit losses for the German bank and pressure on its capital.

Münchener Hypothekenbank today (Thursday) became the fifth institution to tap outstanding issuance this month, with flows in jumbo covered bonds proving encouraging, and another tap is said to be underway.

The recent trend of covered bond issuers tapping outstanding jumbos continued today (Tuesday), while one French name is said to have this week tested investor sentiment for a new issue.

Société Générale SCF is increasing its recent Eu1.25bn 10 year public sector obligations foncières issue by Eu1bn after encountering strong real money demand for the tap. Meanwhile a rare, if modest and privately placed, dollar issue was executed yesterday (Wednesday).

A Eu125m tap for Eurohypo has been the only jumbo covered bond activity so far this week, with the Easter holidays and competition from other asset classes stymieing new issuance.

Moody's last Thursday placed on review for possible downgrade the mortgage and public sector Pfandbriefe issued by SEB AG.

Fitch last week took rating actions on several major banks following a review of the capacity of high grade sovereigns to support their largest and most systemically important commercial banks. The agency upgraded two German Pfandbrief issuers, but cut the ratings of four entities in the Dexia group.

Landesbank Baden-Württemberg yesterday (Tuesday) tapped its Eu1bn February 2014 Pfandbrief, and Caisse de Refinancement de l’Habitat is today (Wednesday) also taking advantage of a “perfect week” to increase the 10 year Eu1bn issue it priced on 25 March.

Germany’s federal council, the Bundesrat, on Friday approved an amendment to the Financial Markets Stabilisation Law that modifies the German bank guarantee scheme to allow for guarantees of bank debt in maturities out to five years. However, the extension is accompanied by conditions that could limit supply of longer dated government-backed debt, which had been expected to squeeze Pfandbrief issuance.

Moody’s this (Tuesday) morning cut the rating of Skandinaviska Enskilda Banken AB from Aa2 to A1 and that of its German subsidiary, SEB AG, from A1 to Baa1, and left them both on negative outlook.

Standard & Poor’s yesterday (Wednesday) put six members of the Hypo Real Estate group on CreditWatch positive after the German Financial Markets Stabilisation Fund (SoFFin) took a 8.7% stake in the group as a first step to taking control of and recapitalising it. The rating agency said that an upgrade of up to three notches is possible.