250th anniversary of the Pfandbrief: Interview with Dr. Georg Reutter

Dr. Georg Reutter, CEO of the DZ HYP Management Board

What role does the Pfandbrief play for you as a funding instrument?

DZ HYP is a conventional Pfandbrief bank where the Pfandbrief plays a fundamental role in the funding mix. Issuing Pfandbriefe allows us to fund the covered portions of our real estate lending business and our public sector business on the capital market at attractive terms and with the required maturity. The Pfandbrief also provides us with a funding instrument that has already proved its strength and reliability in crisis situations. That gives us the confidence we need as an issuer in terms of believing that we are well positioned with the product. 

250 years later and the Pfandbrief seems to have lost none of its appeal. What would you say is its greatest virtue?

The stringent regulations set out in the German Pfandbrief Act give investors who opt for the product a high level of security. This is due, in particular, to the consistent supervisory practice, the high transparency requirements and the particularly conservative valuation of the covered loans. Especially in difficult times, such as during the financial crisis, the product has proved itself and emerged even stronger. This was also thanks to the constant amendments made to the Pfandbrief Act. The Pfandbrief has proved its versatility in the process without compromising on quality. Alongside the legal framework, the regulatory framework is also constantly being adapted. This is a good combination which will also guarantee the Pfandbrief’s success in the future. 

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?

First and foremost it is important for us that the German Pfandbrief falls into the “European Covered Bonds (Premium)” category, meaning that there are no changes in regulatory treatment. Quality standards will remain unchanged and the Pfandbrief’s appeal should be secured. Outstanding questions regarding the design of the “European Covered Bonds”, however, remain of interest. These include the possible asset classes or the product's distinguishing features and pricing compared with other products. It will take some time to discuss and clarify these issues. 

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?

Here at DZ HYP, the issue of sustainability has not only been on our radar for many years. As a Pfandbrief bank within the DZ BANK Group we also live and breathe the principles of cooperative banking and feel committed to the goal of sustainability. We welcome the changes and market developments that are emerging in connection with this issue. Our sustainability management is already based on a solid foundation of data and experience. We have been reporting on all activities in this area for several years now. Further measures are in the planning phase. These also include funding our “sustainable” lending business by issuing bonds in the “ESG” segment in the future

In your opinion, which trend is currently doing more to drive innovation on the capital market, sustainability or digitalisation?

Both topics rank among today's burning issues and in many areas of banking, the two aspects are actually closely linked. Where digitalisation makes our business more efficient, faster or more secure, this contributes to the sustainability of our business model. Initiatives and regulatory measures to provide incentives for market participants to become more sustainable have already been a topic of discussion at the EU level for some time now, the aim being to ensure that the entire financial sector can make a contribution to sustainability. These efforts are also being supported by sustainability rating agencies that are constantly adapting their requirements. On the capital markets these developments are already reflected in various “sustainable” issue formats and are enjoying strong demand among investors. 

At the same time, our industry has to rise to the challenge of the digital revolution. Pfandbrief banks in particular, which have traditionally been considered rather conservative, must address the issue of digital transformation in order to achieve the degree of flexibility required to accelerate change processes, without jeopardising our most important asset, “security”. The capital market has already taken the first tentative steps in this direction. It is important for us to keep up with this development. This is why we will continue to focus intensely on this issue, weighing up our actions carefully and looking closely at where our business model can really benefit from new technologies, also as regards the capital market.