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December 2008 | ifr special report | 13 PFANDBRIEFE ROUNDTABLE

Euribor fixings and where the quotes are compared to where banks could get money, I don't see transparency in pricing and liquidity coming back to jumbo markets.

Viteau : I agree. I think an isolated attempt to establish secondary market making will be unsuccessful unless the overall situation improves.

Hagen : But we are talking about the future. I agree that at the moment there is not much to be done but we were talking about what's needed in the future before investors will buy a jumbo, and what needs to be done to restore investor confidence. Why should the jumbo issue make sense for an investor if there's no liquidity?

Dahmer : But you don't know when or what kind of normalisation there will be in the future. We are hearing things like if you design a product you might be required to hold a percentage on your own books. If that really comes across from the US as a requirement for issuers, that you have to hold 5% of your own product on your own books, or if the arranger of a deal is required to hold a percentage on its books, that may have a big influence on my willingness to provide additional liquidity. I agree we have to look into the future but we don't know what the normalisation of the market will look like. Whatever we think of, it may be totally different, because the underlying general environment can be totally different.

Volk : I agree with Steffen. We do not yet know how this deleveraging play out. We see if we look at Bundesbank data: a lot of banking groups and their asset structures, and while a few banking groups have not changed a lot, other banking groups in Germany have. Their claims against other banks and the securities on the balance sheet have changed in the last 15 or 20 years, so their asset structures have changed a lot. It is very difficult to forecast how this will end up, where the deleveraging process will stop and whether new banking and funding regimes will emerge. It is crucial to give some indication of how many banks will be willing to commit their balance sheets again. This is a precon- dition for liquidity in a potential jumbo market.

Laurent Viteau, EuroMTS “ I was very surprised to see the distribution

summaries of the state guaranteed paper. Close to 50% of the investors were bank investors. It gave me hope that high quality products like a Pfandbriefe will still be bought in the future by such investors.

Huber : I agree that we have to see to what extent banks will want to return to that market, and how willing they will be to invest.

I was very surprised to see the distribu- tion summaries of the state guaranteed paper. Close to 50% of the investors were bank investors. It gave me hope that high quality products like a Pfandbriefe will still be bought in the future by such investors.

Hagen : I'm not asking for any senseless activity, I'm just saying that it's better to think of how we can get this market back to life, instead of just sitting here and watching like a rabbit caught in the headlights? It's better to try to be prepared than wait until things get better and then come back with

the old solutions that we used to use. We wont go back to the normality that existed before the crisis any time soon. If we go back to it it will take a couple of years at least. We have to adjust to that.

IFR: Will we see a change in the investor base? Joerg mentioned that he hopes bank investors will remain comfortable with the product. If we get more illiquidity and higher spread levels, will we see a change in the investors that will buy Pfandbriefe?

Dahmer : For the general covered bond market, I would say yes. For the Pfandbriefe market in particular, I hope the majority of investors will remain rates investors. I can imagine there will be some former ABS and senior investors who will be looking for additional protection. For the Pfandbriefe market I'm quite hopeful that we will remain within the rates world. In other words, Pfandbriefe investors will likely remain largely unchanged.

Huber : That's also my view. There was an article recently that argued insurance companies have too much bank paper in their portfolios. That may be true but I don't think they can get rid of the Pfandbriefe as an investment product. They need the yield pick up, they just can't go into government bonds. They cannot just go into the really high yield products either, so there will certainly be a stable investor base in the future. When it comes to bank investors, they will also use Pfandbriefe in the future. To the same extent like they used to? I'm not

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