KfW stands for continuity and security in volatile capital markets

To fund its promotional business this year, KfW has sold more than 360 bonds in 17 currencies in a total volume of EUR 75.8 billion to institutional investors in Germany and around the world. "This year it was the European sovereign debt crisis in particular that shaped the mood of the international capital markets for long stretches. The markets were characterised by high volatility. Nevertheless, thanks to our first-class German credit quality and reliable issuing strategy, we have held our own very well", said Dr Günther Bräunig, Member of the Executive Board of KfW Bankengruppe in charge of capital markets, in Frankfurt today on the occasion of the annual press briefing on the promotional bank's capital market activities.

KfW expects a long-term funding volume of around EUR 75 billion for the year 2011 as well. It will continue implementing the funding strategy that has proven successful also in times of crisis and will again offer its investors highly liquid benchmark bonds in euros and US dollars as well as public transactions and tailor-made private placements in the most diverse currencies and maturities. "The sovereign debt crisis is not over, and it will take some time for confidence to return to the markets. We will defy the imponderables in the international capital markets with the security we offer as a Bund surrogate and with the continuity and transparency that investors all over the world appreciate", said Bräunig.

KfW expects more intense competition on the supply side in 2011. While some European states will be working to reduce the level of new borrowing as part of their consolidation efforts, other new issuers will enter the market, such as the European Financial Stability Facility (EFSF) for instance. In this regard, Bräunig explained: "In recent years, with the emergence of government-guaranteed bank bonds, we have already shown that we are capable of holding our own very well in this competition. Not only are we firmly established in the international capital market and very experienced, we also offer investors very high flexibility in the issue of securities in the most diverse currencies and maturities".

KfW is also attractive for investors who are orientated towards sustainability, so-called "Socially Responsible Investors". "We have long since applied the yardstick of our sustainability-oriented promotional mandate to our capital market activities, for example by sustainably managing our own liquidity portfolio. Other investors are also increasingly mindful of the issuers' sustainability performance in their investment decisions. And leading sustainability rating agencies have given our business activities excellent assessments", explained Bräunig.

In its capital market press briefing KfW regularly reports on the market segment of "asset securitisation" as well. The situation in the European securitisation markets has brightened up this year. Securitisation transactions totalling around EUR 86 billion were sold to investors (EUR 19 billion in 2009), with the securitising banks using the instrument primarily for funding purposes. Particularly British and Dutch RMBS as well as German automobile ABS have been positively received by the market. With the successful placement of a securitisation of German corporate loans, a positive development has started in this asset class as well.

Nevertheless, not enough investors have yet returned to this market segment, which very likely reflects the continuing lack of trust. In response, Bräunig pointed out the solid performance of European and German asset securitisation transactions, citing that even three years after the crisis broke out the cumulative loss rate of European securitisations is on a very low level.
"The securitisation industry continues to be called upon to restore confidence in its products. It has set an important milestone this year under the TSI by introducing the 'German Securitisation Standard', which KfW was instrumental in developing", Bräunig emphasised. It is a quality label that underscores the solid structures of securitisations "Made in Germany". It includes fundamental quality features, for example:

• The securitisation must be from the banks' existing portfolio only; that is, the securitised portfolio must not contain any loans granted on an "originate to distribute" basis,
• re-securitisation is not permitted, and
• the banks must assume a reasonable risk retention of at least 5% of the transaction.

Bräunig emphasised the great importance of a functioning securitisation market for the credit supply to the economy, particularly in the year ahead. “Reviving the securitisation market is not an end in itself! Rather, the credit supply to the economy will be facing big challenges in the year ahead with a view to changes to the regulatory framework and the very high funding requirements of European banks. Credit institutions will therefore need to use the entire range of covered funding instruments, including securitisation", he explained.

KfW will therefore participate in securitisation transactions as an "anchor investor" next year as well. In 2010 it already supported securitisation transactions as an anchor investor with approx. EUR 1 billion. It will also continue to offer its securitisation platforms PROMISE and PROVIDE.

"We want to fulfil our responsibility as a promotional institution and use all our possibilities to secure a stable supply of credit as the economy recovers. Our capital market activities - funding and asset securitisation - are also making a substantial contribution to this goal", Bräunig concluded.