The major rating agencies have already indicated that the unguaranteed ratings of most Landesbanken will be in the single A area, on a par with many other European banks (see table download). The Landesbanken have adjusted in advance to the situation by developing closer ties with their savings banks owners and by prefunding their future business (these deals will be grandfathered until end 2015 under the new law). Landesbanken will also increasingly fund using asset-backed structures and covered bonds as unsecured funding becomes more expensive.
The other new law – the replacement of the German Mortgage Bank Act with a general Covered Bond Law (Pfandbriefgesetz) – will put German bank funding on a more even keel by allowing all banks to issue covered bonds provided they meet certain criteria. Currently only mortgage and public sector banks are allowed to do this. But, again, this is unlikely to reshape German banking because large banks had previously acquired mortgage banks to enjoy this advantage.
