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DON'T DO IT right, do it first. The idea that any product that breaks new ground enjoys an indelible branding advantage has become a marketing mantra. But in the debt capital markets, the recent fortunes of the Pfandbrief suggest that holding on to that advantage is an increasingly demanding exercise.
Once content to sell itself as the original and still the best covered bond, the Pfandbrief is now in competition with established or growing rival products in at least six jurisdictions, and with mortgage-backed securities (MBS) in Germany itself. Combined with the downgrading of certain German mortgage banks and the loss of the Landesbanken guarantees in July 2005, until last year the Pfandbrief was losing ground to other European covered bonds.
Pfandbriefe still account for nearly 75% of all covered bond issuance. According to figures from the Association of German Mortgage Banks, gross Pfandbrief issuance increased by 14% between 2001 and 2002, from e174 billion to e198 billion.
But net of redemptions, both years were negative ? 2001 by a narrow e1.3 billion, 2002 by e16.8