Helaba has assumed the public sector Pfandbrief programme of WestLB from Portigon Group following completion of a transfer of portfolios on Monday, with Fitch noting that the credit risks of the combined cover pool are unlikely to differ significantly from those of Helaba’s standalone pool.

The WestLB portfolios taken over by Portigon Group were split between Landesbank Hessen-Thüringen, which has assumed Verbund assets of some Eu40bn, and Erste Abwicklungsanstalt (EAA), which has assumed the risks of the remaining portfolio, according to a statement issued by Portigon on Monday.

Fitch yesterday (Wednesday) said that it does not expect the transfer of the public sector Pfandbrief programme to have an impact on the AAA rating of Helaba’s public sector covered bonds.

RBS analysts said that as of yesterday spread levels of outstanding WestLB benchmark Pfandbriefe have not yet fully reflected this risk transfer.

“In our view, this is due to relatively low turnover/liquidity in these bonds,” they said. “We believe that in particular the WESTLB 4 1/8 06/08/16 will converge further to the current level of the HESLAN 3 1/4 04/20/16 in the near future.”

Fitch said that although the public sector cover pools have not been managed jointly, the combined current nominal overcollateralisation (OC) provides sufficient protection, with a long term issuer default rating of A+ for Helaba also helping to safeguard the AAA rating of the Pfandbriefe.

Fitch has assigned a Discontinuity Cap (D-Cap) of 5 (low risk) to Helaba’s public sector Pfandbrief programme, which it said is unlikely to be affected by the integration of WestLB’s programme.

“Whereas the assessments for asset segregation and systemic alternative management are driven by the legislation and will remain unchanged,” said Fitch, “also no changes in the assessments of the liquidity gap and systemic risk, cover pool-specific alternative management and privileged derivatives are expected as Helaba will manage the combined cover pool and the overall characteristics of the pool will remain stable.”

According to Fitch, the amount of outstanding Helaba public sector Pfandbriefe increased by 28.1% to Eu21.7bn as a result of the merger, with the size of the cover pool increasing to Eu27.3bn.

“Hence, the merger would lead to a slight increase of the nominal OC to 25.8%,” said Fitch.

The rating agency said that it has not run a full analysis on the combined cover pool.

“However, the agency is of the opinion that the provided data indicates the credit risks for the combined pool should generally be in line with the risks calculated for Helaba’s cover pool on a standalone basis,” it said. “Both pools have a high credit link to Germany (around 25%), a high exposure to German borrowers (around 90%) and generally to borrowers situated in AAA-rated countries (around 95%).”

Fitch does not expect market risks to change significantly, noting that more than 95% of the assets and liabilities are denominated in euros, with the former Portigon pool tending to reduce the open foreign exchange positions by around 2.5%.

Interest rate risks tend to heighten as the relative open interest rate position increased to 16.2% based on end of August data compared with 7.3% for Helaba’s public sector programme on a standalone basis at the end of April, it added, although the asset and liability profile of the combined pool is better matched in the agency’s view.