Pfandbriefe: Germany's secret gamblers

April 01, 1999

Public Pfandbriefe sold by German mortgage banks are a familiar sight in international capital markets. But less well-known is what's swimming around in the underlying pools of collateral - and how the issuers earn their money. Another Orange County in the making? Marcus Walker investigates.

Securitization, German-style

Expanding balance sheets Euroland Pfandbrief issues (1.1.99 to 26.3.99) (€m) Public Pfandbriefe

Mortgage Pfandbriefe

Essen Hyp 10,800

AHB

9,171

DePfa

6,049

Rheinhyp

5,000

1,650

Dexia Hyp Berlin

4,230

Eurohypo

2,126

157

HypoVereinsbank

2,102

1,580

DG Hyp

2,024

1,260

Düsseldorfer Hyp

1,550

Deutsche Hypo Hannover

1,183

200

WestHyp

1,175

605

Deutsche Hyp

850

1,653

Source: Capital Data Bondware The explosion of public (öffentliche) Pfandbrief issuance in the last two years is one of the most intriguing developments in the international capital markets. Investors get a spread to Bunds on paper that in many cases is effectively state-backed. The issuers make a positive spread between the assets that back the Pfandbriefe and the Pfandbriefe themselves: this is despite the fact that at the time they purchase the collateral it yields less than the yield that investors would demand in the Pfandbrief market.

Pfandbriefe: Germany's secret gamblers

Public Pfandbriefe sold by German mortgage banks are a familiar sight in international capital markets. But less well-known is what's swimming around in the underlying pools of collateral - and how the issuers earn their money. Another Orange County in the making? Marcus Walker investigates.

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