Natixis Pfandbriefbank anticipates debuting in the next three months, Ralf Wittenbrink, member of the board, told The Covered Bond Report. He also discussed why its French parent turned to Pfandbriefe for its commercial real estate business and the defining elements of its credit profile.

The CBR: Why has Natixis, as a French bank, turned to German Pfandbriefe and to what extent is the refinancing instrument seen as key to the bank’s commercial real estate business strategy?

Ralf Wittenbrink, member of the board, Natixis Pfandbriefbank: Natixis is the number one bank for commercial real estate (CRE) in France and also has a strong position more broadly in Europe. In the past few years it has also done CRE business in Germany, via the Frankfurt branch. The bank has made a strategic decision to maintain and even expand its CRE business in Germany, with an emphasis on high quality real estate, and in this context it is obviously important to be competitive in terms of refinancing. And in Germany there is no better instrument to refinance commercial real estate financings than the Pfandbrief.

Natixis S.A., Paris

Of course other covered bond formats are already used within the BPCE group, which uses obligations foncières and obligations à l’habitat to refinance the French business, but Natixis itself did not yet issue and when a bank decides that commercial real estate is of strategic importance and that it aims to further develop its position in Germany then it is only logical to think about using the Pfandbrief. It has proved its resilience during the crisis, and allows commercial real estate business to be refinanced on attractive terms.

The CBR: What will the composition of your cover pool look like?

Wittenbrink: We will predominantly do German business, and will also look at high quality financing opportunities in France and then in the medium term elsewhere in Europe, but our emphasis is clearly on Germany. And in principle we will only take assets onto our books that are Pfandbrief-eligible, in full or in part, so the cover pool will more or less mirror our overall portfolio.

The CBR: BaFin granted Natixis Pfandbriefbank a mortgage Pfandbrief licence in the summer – what are you working on now and what are the next steps?

Wittenbrink: Yes, only eight months after having applied for a bank and Pfandbrief licence we received the relevant approval from Bafin. That’s a short period if you look at how long these procedures typically take, so we are very happy with that. Good preparation and good process management are probably the main reasons for the relatively speedy approval.

Ralf Wittenbrink

We are now also entered in the commercial register and are nearly ready to start operating the banking business, with some contractual issues needing to be finalised. For example, we are working on a letter of comfort (Patronatserklärung) from Natixis SA as our parent, which is necessary to get the best possible rating of the Pfandbriefbank. We expect to be able to transfer the first loans from the Frankfurt Natixis branch on to the Natixis Pfandbriefbank books within the fourth quarter, and in a second step will look at loans that are booked with Natixis SA.

The cover pool administrators (Treuhänder) are already appointed and we therefore expect to be able to allocate loans to the cover pool soon after they reach us. We expect to be able to add the first loans to the cover pool in the course of Q4, and with that to be in a position to issue.

The CBR: When do you expect to launch your first Pfandbrief and will you issue benchmarks?

That is difficult to say, in particular because of when many investors close their books in December, but we anticipate issuing our first Pfandbrief within the next three months. The first issue is likely to be private placement, in the double-digit size range, rather than a large deal, and the maturity will be oriented around the duration of the collateral as we will take a conservative approach to asset-liability matching in the cover pool. We will mainly issue maturities of three to five years, although that is not to say that a two year or seven year Pfandbrief would not be a possibility.

In terms of larger, more liquid rated issuance, this is something that we will only pursue in the longer term. We anticipate to take onto our books around Eu1.2bn of CRE financings over the coming financial year, which means that our issuance will not be in benchmark realm. Even Eu500m is too much for us to raise in one go, so in the next year or two we anticipate that the biggest deal size will be Eu200m-Eu250m, besides private placements in the double-digit range.

The CBR: You have decided to have one rating of your covered bonds to begin with – why?

Wittenbrink: We have asked Moody’s to rate our Pfandbriefe and are working with them to have the rating as soon as possible. It won’t be ready in time for the first issue, although it would not make sense anyway to do all the analysis on what will initially be a limited cover pool. We expect our covered bonds will get a top rating.

What is unique is that the financings that we will bring onto the books of Natixis Pfandbriefbank will come with a guarantee from our parent. Natixis SA will also cover the entire unsecured funding needs of Natixis Pfandbriefbank, and will pledge to us as security against credit losses its claim on repayment of the unsecured deposits (Rückzahlungsanspruch). All this points to Natixis Pfandbriefbank having very low credit risk.

In terms of the Pfandbriefe we may in the medium term need to get a second rating to expand our investor base, but we have the impression that in this phase of market entry we can work with only one rating. And because Natixis Pfandbriefbank will not be present in the senior unsecured market an issuer rating isn’t really necessary, which is what investor feedback also tells us.

The CBR: Do you envisage issuing public sector Pfandbriefe?

Wittenbrink: It is an option that the group will at a given point in time consider, but it is not part of the business plan nor was it an element of our application for a banking licence.