Louis Hagen

The Pfandbrief pioneer and covered bond advocate talks to Hardeep Dhillon about his hopes for the burgeoning asset class

Louis Hagen is almost synonymous with the Pfandbrief and the covered bond asset class. For the last five years he has been ensconced in the work of the Verband deutscher Pfandbriefbanken (VDP - the Association of German Pfandbrief Banks) and its previous incarnation, the Verband der Hypothekenbanken (VDH - the Association of German Mortgage Banks), as executive director. In addition, he has been chairman of the European Covered Bond Council (ECBC) and chair of its steering committee for the last 12 months.

The cornerstones of the ECBC's objectives are to ensure that issuers remain under the strict supervision of regulators; that investors have a privileged claim over senior secured debt; and that assets in the cover pool remain robust. "We do not want issuers or investors to lose confidence in the market and it is our job to make sure that the European asset class stays as safe and liquid as we at the VDP want the Pfandbrief to be," says Hagen.

Hagen's focus has not been taken up entirely by the ECBC this year, as 2005 has been a landmark year for the German Pfandbrief. An overhaul of legislation resulted in July 19's removal of the specialist banking principle and the subsequent introduction of the Pfandbrief Act unifying the Mortgage Bank Act, Public Pfandbrief Act and Ship Bank Law. The new law enables any financial institution to issue Pfandbriefe providing it obtains a licence from German Federal Financial Supervisory Authority (BaFin). "Now only one law governs the issuance of Pfandbrief by all the different banking groups," says Hagen.

The change in law also constituted the re-branding of the VDH to the VDP, although Hagen stresses that the organisation's aims remain the same: "We have always focused on and specialised in the workings of the Pfandbrief. We are the lifeblood for the mortgage industry and the first association to combine all three pillars of German banking (private commercial banks, public sector banks and credit cooperatives)."

The year marked another momentous occasion for the German product: the 10-year anniversary of the Jumbo Pfandbrief, whose introduction, Hagen feels, has been one of the great success stories of the covered bond asset class. "With volumes to date surpassing EUR400bn, the Jumbo Pfandbrief has grown to become one of the preferred investments for the institutional investor community and triggered the introduction of covered bond laws and techniques in other markets," he says.

The market has now spread into 22 European countries and despite the increased competition, Hagen believes the Pfandbrief has even taken advantage of this situation. "This expansion has opened up new pockets of domestic investors," he says.

The strength of the Pfandbrief product has also been witnessed in the incidents surrounding German real estate bank AHBR and fears of its possible liquidation. BaFin has not taken any public action because it does not see any danger for the Pfandbrief holders. "Even if it were to take such action, the appointment of a cover pool administrator will protect the interests of Pfandbrief investors according to the new law," says Hagen.

Set up in November 2004, the ECBC's membership has grown to 70 members and acts as a lobby organisation for issuers, investment banks, rating agencies, electronic platforms, specialised lawyers and other covered bond participants, but not investors.

In a nutshell What was your first job? Ice cream salesman when 15 years old. And what is your career high? This year's achievement of creating a solid legal basis for issuing Pfandbrief... and career low? When I lost my first case in court. Whose job do you want? My wife's. A housewife and former lawyer, I admire her for giving priority to raising our children. What's the first thing you read in the morning? The ads on cereal boxes. Who do you most admire? Frederick the Great, the inventor of the Pfandbrief, also his modesty as a king. What makes you laugh: English humour and Tim Skeet, ABN Amro's Mr Bean. What do you like to do on a day off? Powder skiing in the Rockies.