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Pfandbriefe market: Can a jumbo give birth to a baby?

Optimists believe the new market in jumbo Pfandbriefe could become sophisticated, liquid and efficient enough to be regarded as a kind of baby Bund. Pessimists think overcoming image problems in the eyes of international investors will prove too difficult. Philip Moore reports.

At a recent get-together of Munich's city bankers, Bayerische Handelsbank board member and new president of the Association of German Mortgage Banks Walter Dieck fell into conversation with a professor of economics at the University of Munich - a specialist in banking - about Germany's new "jumbo" Pfandbrief market which combines issuing activity into offerings of Dm500 million or more, and promises market-making. The market's profile is improving, they agreed. After all, remarked the professor, Pfandbrief had an accepted English translation - "mortgage bond". Dieck smiles ironically when he recalls the depth of misunderstanding even at the very nerve centre of the Pfandbrief market's development. As Stephan Bub, treasury head at Bayerische Vereinsbank, says: "The idea of the jumbo Pfandbrief was born in Munich. The launch of the product demanded a highly concerted effort by the three big Munich banks."

Just how wildly misleading the translation "mortgage bond" has become is revealed by an analysis of the first six months of the jumbo Pfandbrief market. Between May or June 1995, when the first jumbo was issued by Frankfurter Hypothekenbank or Bayerische Vereinsbank (definitions differ) and the end of November, 31 Pfandbrief issues - with an average issue size of Dm1.285

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