250th anniversary of the Pfandbrief: Interview with Dr. Edgar Zoller

Dr. Edgar Zoller, Deputy CEO, Bayerische Landesbank, Munich

What role does the Pfandbrief play in your bank’s funding strategy?

The real estate sector forms a key element of BayernLB’s business, so our proximity to the Pfandbrief is already inherent in BayernLB’s business model. BayernLB can look back on a long history of Pfandbrief issues and maintains a continuous presence in the jumbolino segment with benchmark bonds. BayernLB’s benchmark Pfandbrief transactions have always stood out due to their strong performance in the secondary market, reinforcing the bank’s reputation as a professional and fair issuer as a result.

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

The German Pfandbrief enjoys an excellent reputation in the market as a safe investment vehicle with a framework that conveys maximum transparency and reliability to investors. No other financial product benefits from a brand image with such positive connotations. Even in difficult times the Pfandbrief has proved itself as a funding instrument.

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, BayernLB is interested in, and is keen to look into, any expansion of the issue universe. It is not yet clear, however, whether the market response to this new segment will be a positive one and how the segment will be priced. This means that, especially for existing Pfandbrief issuers, it is still too early to judge whether this segment will enrich the industry.

A new funding instrument in the form of senior preferred bonds has been available since August 2018. Does that affect your funding strategies and if so, how? 

The segmentation of the senior unsecured market into preferred and non-preferred securities has further enriched BayernLB’s funding mix options and allows for greater differentiation in the funding portfolio. The different ratings assigned to the two asset categories make it possible to meet investor needs on an even more individual basis and to act based on very specific demand.

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?

BayernLB supports the fundamental ethical approach of a sustainable and socially responsible business model to the best of its ability. It has already launched extensive activities involving “green” and “social bonds” within the group via its subsidiaries DKB and BayernLabo, and will continue to build on these activities in the future.