250th anniversary of the Pfandbrief: Interview with Stephan Engels
What role does the Pfandbrief play in your bank’s funding strategy?
The Pfandbrief is an important component of Commerzbank’s funding mix, as it enables us to acquire long-term funding based on attractive terms. We are regularly represented on the capital markets through Pfandbrief issues. Buoyant demand shows that the Pfandbrief is an attractive investment product for domestic and foreign investors. At The Pfandbrief is an important component of Commerzbank’s funding mix, as it enables us to acquire long-term funding based on attractive terms. We are regularly represented on the capital markets through Pfandbrief issues. Buoyant demand shows that the Pfandbrief is an attractive investment product for domestic and foreign investors. At Commerzbank, Pfandbriefe or covered bonds account for approximately 50 percent of funding. This allows us to support our core business of construction financing in particular.
250 years later and the Pfandbrief seems to have lost none of its appeal. What would you say is its greatest virtue?
Security! This is due to the stringent requirements set out in the German Pfandbrief Act. Practical experience bears testimony to this security: the Pfandbrief is crisis-tested and has never failed. That is why it is also in such demand among investors seeking security. And the Pfandbrief market is growing: most commercial banks worldwide now use covered bonds for their funding.
Harmonisation is a key topic: in addition to the “European Covered Bonds (Premium)” segment, which includes the Pfandbrief, the plan is to create a kind of “European Covered Bonds” standard segment in the future. These meet the requirements set out in the Directive but do not qualify for privileged status. What do you think about the planned expansion? Will it impede or enhance your business?
In principle we welcome different funding instruments being available to us as a bank. We take advantage of these opportunities. Commerzbank structured a covered bond based on a portfolio of SME loans as early as 2013. The strong investor demand has shown us that it is also a good idea to offer standard products like this one. However, the prerequisite for successful placement is that the structure and underlying assets are made transparent.
The issue of sustainability is attracting a great deal of attention in the capital market. Could you imagine moving into the “green” or ESG bond segment?
Corporate responsibility is one of Commerzbank’s guiding principles: ecological, social and ethical criteria play a central role in our corporate governance. The market for green investments has also grown rapidly in recent years. Investors are increasingly looking for sustainable investment opportunities with transparent criteria.
While we have not yet issued a green Pfandbrief, we successfully launched our first Green Bond, in the form of a non-preferred senior bond, on the market last year. The 500 million euro bond is allocated to loans for onshore and offshore wind and solar projects in Germany, other European countries and North and South America. The issue allowed us not only to broaden our investor base, but also to reinforce our sustainability strategy.
What is more: we have already been supporting our corporate clients in the preparation of sustainable bonds and their placement in the international capital market for years.