Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Western EuropeSeptember 4 2005

Germany thwarts Dublin’s bonds issue ambitions

Dublin’s aspirations of becoming a major European centre for the issuance of covered bonds have been dealt a heavy blow by two German banks.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

The banks, Hypo Real Estate (HRE) and WestLB, have decided to repatriate their international funding business – including the issuance of covered bonds – to Germany from the Irish capital.

According to both banks, a major factor in their decision was Germany’s new Pfandbrief (German covered bond) law. The law, which took effect in mid-July, gives all banks active in Germany the right to issue Pfandbriefe.

The law also further boosts the high degree of investor security – the majority of the bonds are triple A rated – and provides issuing banks with more flexibility in diversifying the asset pool.

Since early 2003, Hypo Real Estate and WestLB have followed the lead of Depfa, a state finance bank, in issuing covered bonds under Ireland’s Asset Covered Security (ACS) legislation. Their motivation was twofold: Ireland’s lower corporate tax rate compared with Germany’s and a perception that ACS was a notch better than the traditional German Pfandbrief.

By enacting the new Pfandbrief law, the German government has struck back.

“The law is a good example of how the right kind of political reform can strengthen Germany as a financial centre,” commented Georg Funke, chief executive of HRE, which was spun off from HypoVereinsbank in early 2003.

In HRE’s case, its international funding business, including Pfandbrief issuance, will be moved from Dublin to Stuttgart, moving €1.6bn in capital back to Germany.

Although HRE will lay off a considerable number of staff in Dublin, it has no immediate plans to close its office there.

Depfa, which was based in Frankfurt before moving to Dublin in 2002, said the decision of its peers had no bearing on its future strategy.

“We will continue to issue ACS because the Irish law is just as good as the (new) German one and the bond is very popular among investors,” said a Depfa spokesman.

Depfa also continues to issue a significant volume of Pfandbriefe through its Frankfurt-based subsidiary, Deutsche Pfandbriefbank.

Earlier this year, Depfa aborted a sale of the German unit after it failed to fetch what the bank considered was a proper price for it.

Was this article helpful?

Thank you for your feedback!