250th anniversary of the Pfandbrief: Interview with Andreas Rehfus
What role does the Pfandbrief play in your bank’s funding strategy?
The Pfandbrief is the cornerstone of our business model and represents our main source of funding. For this reason, the Pfandbrief plays an extremely important role for Deutsche Hypo.
Even after 250 years, the Pfandbrief does not seem to have lost any of its appeal. What would you say is its greatest strength?
The Pfandbrief has always stood for top quality. As a funding source it offers continuous market access, also in phases of high risk and volatility such as we have sometimes witnessed over the last decade. Thanks to the Pfandbrief Act, stable rules on liquidity in the cover pool and stringent transparency requirements, the Pfandbrief enjoys a high level of trust among all investors – from institutional to private investors. And this underpins quite impressively the Pfandbrief’s status as a premium product among covered bonds.
The market for “green Pfandbriefe” is still in its infancy, which means that we sometimes come across different definitions of the product. Would more standardization, perhaps through legislation, be more of a benefit or a hindrance to the market at the present point in time?
The Green Bond Principles are certainly a good start. Minimum quality standards are crucial for a product to establish itself as market leader on a lasting basis. Further standardization would undoubtedly be desirable, although it would not have to be created through statutory regulations. Instead, I expect the issuers and investors themselves to see to the onward development of the green Pfandbrief product. Ideally, the interplay of supply and demand will give rise to best practice examples which will further flesh out the current framework and which would be quality-assured by a rating agency, for instance. Because that is going to be all-important: the quality of the product must be assured at all times. Just as the Pfandbrief is the top product in the covered bond universe, so the green Pfandbrief will have to establish itself as the top product among green securities. As new owner of the green Pfandbrief brand, the vdp will certainly play its part in this.
Do you think a price differentiation between green and non-green bonds can assert itself?
Yes, I do expect a certain price advantage in the medium to long term. However, virtually no differentiation is possible at present in the current low interest rate environment and given the extremely narrow spreads for Pfandbriefe. That said, the green Pfandbrief offers other advantages which should not be underestimated, such as a broader investor base and, consequently, better sales opportunities. What is more, they do of course complete banks’ green value chain. And who knows? Perhaps green securities will be the “new normal” in the not too distant future.