The international ratings agency, Fitch, has issued a report analysing the differences between mortgage bonds in European jurisdictions.
It reports, ‘Obligations fonci?res (France), Pfandbriefe (Germany) and c?dulas hipotecarias (Spain) are essentially long-established mortgage/ public sector funding mechanisms, which in recent years have to varying degrees had rather more sophisticated securitisation routines bolted onto them. The most carefully re-designed instrument of the three is the obligation fonci?re; the most basic of the three is the c?dula hipotecaria.’
Fitch says the ‘crucial principle’ in the Spanish bond is over-collateralisation. ‘In fact, it is the most strongly collateralised of the three types of instrument’.
Theoretically, Fitch says, a problem arises from the possibility of extra-pool netting by derivative counterparties in the process of liquidation of a Pfandbrief-issuing bank. ‘The French law backing obligations fonci?res is specifically designed to obviate this’ but has not been tested yet in a real liquidation.
In a further point, the agency says ‘a random portfolio of French public sector debt will in total be of lower credit quality than an equivalent German portfolio. It will, therefore, be natural for soci?t?s de cr?dit foncier to ‘cherry pick’ public sector debt as collateral for their early issues of obligations fonci?res.’
Fitch concludes that the EU should build a cross-border European ‘letter of pledge’ structure based on the German Pfandbrief and on UCITS law. It cautions that this development is not imminent.
Web: www.fitchibca.com |
