The Pfandbrief at 250: Good figures and sound future prospects in anniversary year 2019

  • vdp’s President Dr. Louis Hagen: “The Pfandbrief is 250 years old, but alive and kicking.”
  • The product’s many advantages ensure lasting attractiveness for issuers and investors, and guarantee preferential regulatory treatment
  • Issue volume and volume of Pfandbriefe outstanding up in 2018 – current year began strongly, positive trend expected to persist


The Association of German Pfandbrief Banks (vdp) believes that the Pfandbrief, in its anniversary year 2019, is well equipped for the future, and expects Germany’s most popular financial product in the world to continue faring well.

“The Pfandbrief is 250 years old, but alive and kicking. Throughout its history it has moved with the times, changing constantly to become what it is today: an indispensable pillar of refinancing for its issuers, an attractive investment for its investors and a strong, internationally recognized pillar of the German financial system,”

remarked the vdp’s President Dr. Louis Hagen. Chief Executive Officer Jens Tolckmitt added:

“The Pfandbrief is fit for the future – because as a sustainable product it is in line with current trends, because its appeal will be boosted further by innovation, and because a product that represents security in a setting of mounting uncertainty will stay in demand.”   

Historically, the Pfandbrief’s origins date back to a “cabinet order” issued by Frederick the Great on August 29, 1769. Ever since, the German Pfandbrief has been known as a safe haven for investors thanks to its flawless credit history without a single default, and because it has repeatedly proven its resistance to crisis, most recently during the financial crisis which erupted some ten years ago. What is more, as the undisputed benchmark among covered bonds, the Pfandbrief offers a stable yield spread over German Bunds with a comparable level of investment security that is ensured by a legal framework that is unique throughout the world and is, moreover, being constantly enhanced.

Not only that: over the decades, the Pfandbrief has repeatedly proven its innovative prowess. This it did recently, for example, when the trend emerged toward sustainable finance, by offering new product variants such as “green” and “social” Pfandbriefe. It is also conceivable, in principle, that the Pfandbrief could be used for other asset classes beyond the present spectrum of real estate, loans to central, state and local government, ships and aircraft – provided the quality of the Pfandbrief is not watered down. The sector is currently discussing the pros and cons of this matter.


Number of issuers at all-time high – issues and volume outstanding on the rise

The vdp’s latest figures support the good prospects for the Pfandbrief’s future.

Since the Pfandbrief Act came into force, the number of issuers has risen strongly. As at the end of 2018, it reached a new record high of 82, and other institutions are expected to follow in the years ahead. What is more, after a lengthy phase of consolidation that was brought on by the public Pfandbrief’s loss of structural importance, volumes have climbed again of late. New Pfandbriefe with a total volume of €50.4 billion were sold in 2018, compared with €48.8 billion in the previous year. This increase was driven by mortgage Pfandbriefe, the issue volume of which surged by 17% to €43.2 billion. And because new issues exceeded maturities, the volume of Pfandbriefe outstanding likewise rose overall – despite the continuing decline of public Pfandbriefe – for the first time since 2000, and at the end of 2018 totaled €369.1 billion (2017: €366.2 billion).

With 14 benchmark Pfandbriefe in the first two months of this year alone, and with a total issue volume of some €10.6 billion, issuance activity in the benchmark segment was the strongest it has been since 2011. In the months January to March 2019, Pfandbriefe were issued with a total volume of €21 billion, which represents growth over the first three months of last year of 51%. For 2019 as a whole, the vdp expects – based on the data reported by its members – the positive trend to continue. New issues are likely to come to a total of €55.0 billion and thus again exceed maturities, fueled (as in the previous year) by the dynamic growth of mortgage Pfandbriefe. This is a reflection of the ongoing robustness of the Pfandbrief banks’ real estate financing business. Last year, new loan commitments in this sector were up again, by 2.4% to €160.9 billion.

“2018 was yet another good year for the Pfandbrief. And our product will again demonstrate its undiminished appeal for issuers and investors in the anniversary year 2019,” said Chief Executive Officer Tolckmitt.


Preferential regulatory treatment assured

Key issues for the vdp in the Pfandbrief’s anniversary year 2019 include a number of events and activities to mark 250 years of the Pfandbrief. In particular, we will be throwing our weight behind the ongoing development of the legal and regulatory framework.

Only recently, in March of this year, the German Bundestag passed the Tax Act relating to Brexit, a piece of legislation which features, amongst other things, changes to the Pfandbrief Act which ensure that UK cover assets will continue seamlessly to be eligible after Brexit. The inclusion in the Pfandbrief Act of Great Britain and Northern Ireland as third-party countries regulates, without interruption, new business in the same way as for third-party countries such as Switzerland, the United States, Canada and Japan.

The next substantial Pfandbrief Act amendment will then concern, not least of all, the transposition of the Covered Bond Directive in the Pfandbrief Act. The imminent conclusion of the harmonization process for covered bonds in the European Union is the main point of focus at the moment. Covered bonds are already an important financing instrument in most EU member states, though they remain less well known in some countries of the EU. Thanks to the agreement that has been reached, however, the EU will have at its disposal a framework that provides strong incentives to use these products throughout Europe. The vdp believes that the new rules constitute an important foundation for the permanent privileged treatment of covered bonds in financial market regulation, and that they bear the unmistakable stamp of the German Pfandbrief Act.

“The Pfandbrief is the undisputed quality benchmark in the covered bond universe. We, the German Pfandbrief banks and their Association, will do all we can to make sure it remains just that in future, too,”

concluded vdp President Hagen.