TEXT-S&P: Deutsche Pfandbriefbank mortgage covered bonds on watch negative

Wed Nov 28, 2012 10:14am EST

OVERVIEW
     -- Under our criteria for assessing the counterparty risk of covered 
bonds, which became effective July 12, 2012, issuers have six months to 
demonstrate that their covered bond programs meet our criteria. 
     -- We initially concluded that Deutsche Pfandbriefbank's action plan for 
its mortgage covered bond program would meet the criteria by this date.
     -- We now have reviewed the mortgage covered bond program based on 
current criteria to comply with European Regulations (EC) No. 1060/2009.
     -- While the issuer is working on putting in place remedies by the 
transition date, currently mitigants available to cover in particular the 
program's exposure to bank account risk and commingling risk are not 
sufficient. 
     -- We are therefore placing our 'AA+' long-term rating on these mortgage 
covered bonds on CreditWatch with negative implications. 
     -- We intend to resolve this CreditWatch placement by affirming or 
lowering the ratings on or before the Jan. 11, 2013, transition date to the 
new criteria.
    
    Nov. 28 - Standard & Poor's Ratings Services said today it had placed on
CreditWatch with negative implications its 'AA+' long-term ratings on the
mortgage covered bonds issued by Deutsche Pfandbriefbank AG (PBB;
BBB/Stable/A-2).

This reflects our view that the program currently doesn't have sufficient 
overcollaterization to cover counterparty risk, according to our new criteria 
(for further details see "Covered Bonds Counterparty And Supporting 
Obligations Methodology And Assumptions," May 31, 2012, and "Counterparty Risk 
Framework Methodology And Assumptions", May 31, 2012).

We are undertaking this review at this point to comply with European 
regulation (EC) No. 1060/2009 (for further details see "Issuers' Delays In 
Meeting Updated Covered Bond Criteria Might Lead To Several CreditWatch 
Placements," published Nov. 26, 2012. 

We are currently reviewing whether the action plan provided by the bank fully 
meets Standard & Poor's new criteria for assessing counterparty risk in 
covered bonds by the Jan. 11, 2013. With regard to derivative risk, PBB has 
confirmed that the implementation of the action plan has been finalized in 
line with our new criteria. With regard to bank account risk and commingling 
risk, we have reviewed the currently available credit enhancement and compared 
it to the covered bonds' target credit enhancement we deem commensurate to 
maintain the 'AA+' rating.

The CreditWatch placement also reflects the review of the most recent cover 
pool characteristics (as of June 30, 2012) and additional daily cash flow 
projections (as of Oct. 27, 2012) in this mortgage covered bond program. We 
used these to calculate the commingling risk. 

Based on the currently available information, we believe that bank account and 
commingling risk is currently not sufficiently covered by 
overcollateralization to still achieve a seven-notch rating uplift above the 
'BBB' issuer credit rating. 

We observe that the issuer is undertaking strong efforts to comply with our 
criteria by the transition date. We understand that the issuer is in the 
process of exploring legal enhancements as remedial action for the increased 
overcollateralization requirement, which, when implemented, would reduce the 
target overcollateralization.

The resolution of the CreditWatch placement will depend on the extent to which 
the issuer elects to take remedial action that will enable the program to meet 
the rating criteria by the transition date of Jan. 11, 2013--by which time we 
aim to resolve the CreditWatch placement.

We would expect to affirm the rating if PPB's mortgage covered bond program 
fully meets the rating criteria. According to our criteria, we could 
potentially lower the rating by one notch if we observed that 
overcollateralization to cover the counterparty risk remained at the current 
level. In such an instance, we would only give a six-notch uplift above the 
issuer credit rating, as opposed to the seven-notch uplift we give at present. 

POTENTIAL EFFECTS OF PROPOSED CRITERIA CHANGES
Today's CreditWatch negative placement of these covered bonds based is based 
on our criteria for rating covered bonds (see "Revised Methodology And 
Assumptions For Assessing Asset-Liability Mismatch Risk In Covered Bonds," 
published on Dec. 16, 2009). The assumptions and methodologies used in the 
cash flow analysis are currently under review (see "Advance Notice Of Proposed 
Criteria Change: Methodologies And Assumptions For Rating Certain Covered 
Bonds and CDOs," published on Aug. 5, 2010). The scope of our review may 
include changes to our cash flow analysis, where we use Standard & Poor's 
Covered Bond Monitor to calculate the target credit enhancement for the 
covered bonds.
This review may result in further changes to the criteria. As a result, our 
future assumptions and methodologies used in our Covered Bond Monitor model 
may differ from our current criteria. The criteria change may affect the 
ratings on all outstanding covered bonds in this program. Until such time that 
we adopt new criteria for rating covered bonds, we will continue to rate and 
surveil these covered bonds using our existing criteria (see "Related Criteria 
And Research").

RELATED CRITERIA AND RESEARCH
     -- Principles Of Credit Ratings, Feb. 16, 2011
     -- A Listing Of S&P's New Actions Aimed At Strengthening The Ratings 
Process, Feb. 7, 2008
     -- Covered bond Ratings Framework: Methodology And Assumptions, June 26, 
2012
     -- Assessing Asset-Liability Mismatch Risk In Covered Bonds: Revised 
Methodology And Assumptions For Target Asset Spreads, April 24, 2012
     --  Counterparty Risk Framework Methodology And Assumptions, May 31, 2012)
     -- Covered Bonds Counterparty And Supporting Obligations Methodology And 
Assumptions, May 31, 2012
     -- Revised Framework For Applying Counterparty And Supporting Party 
Criteria, May 8, 2007
     -- Methodology & Assumptions: Applying The Derivative Counterparty 
Framework To Covered Bonds, Feb. 26, 2008
     -- European Legal Criteria for Structured Finance Transactions, March 23, 
2005
     -- Revised Methodology And Assumptions For Assessing Asset-Liability 
Mismatch Risk In Covered Bonds, Dec. 16, 2009)
     -- Methodology: Credit Stability Criteria, May 3, 2010
     -- Global Investment Criteria For Temporary Investments in Transaction 
Accounts, May 31, 2012
     -- Cash Flow Criteria For European RMBS Transactions, Nov. 20,  2003 (not 
applicable for U.K. programs)
     -- Methodology And Assumptions: Update To The Cash Flow Criteria For 
European RMBS Transactions, Jan. 6, 2009 
     -- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology 
And Assumptions, June 14, 2011)
     -- Expanding European Covered Bond Universe Puts Spotlight on Key 
Analytics (published in July 16, 2004)
     -- Rating Pfandbriefe--The Analytical Perspective, Jan. 27, 2003
     -- Methodology And Assumptions: Update To The Criteria For Rating German 
Residential Mortgage-Backed Securities, Jan. 6, 2009
     -- Assumptions: German Law Change Affects Mortgage Foreclosure Period 
Stresses, Nov 28, 2008 
     -- German Pfandbrief Framework Further Improved (published March 3, 2004)
     -- German Index Reports (published quarterly)
     -- Issuers' Delays In Meeting Updated Covered Bond Criteria Might Lead To 
Several CreditWatch Placements, Nov. 27, 2012
     -- What Factors Do We Consider When Analyzing Commingling And Account 
Bank Risk In Covered Bonds, Nov. 26, 2012
 
RATINGS LIST
Ratings Placed On CreditWatch Negative 
                To                       From
Deutsche Pfandbriefbank mortgage covered bonds
                AA+/Watch Neg            AA+/Stable


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.  Alternatively, call one of the following Standard & Poor's numbers: 
Client Support Europe (44) 20-7176-7176; London Press Office (44) 
20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm 
(46) 8-440-5914; or Moscow 7 (495) 783-4009.

Primary Credit Analyst: Christina D Scheibli, Frankfurt (49) 69-33-999-313;
                        christina_scheibli@standardandpoors.com
Secondary Contact: Karlo S Fuchs, Frankfurt (49) 69-33-999-156;
                   karlo_fuchs@standardandpoors.com
Additional Contact: Covered Bonds Surveillance;
                    CoveredBondSurveillance@standardandpoors.com


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Copyright (c) 2012 by Standard & Poor's Financial Services LLC. 
All rights reserved. 

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 Time         USN  User   Headline
 28/11/2012   WNA  WE     S&P DEUTSCHE PFANDBRIEFBANK MORTGAGE
 10:07:39     142  SCRIP  COVERED BONDS ON WATCHNEG
 OVERVIEW -- Under our criteria for assessing the counterparty risk of covered
bonds, which became effective July 12, 2012, issuers have six months to
demonstrate that their covered bond programs meet our criteria. -- We initially
concluded that Deutsche Pfandbriefbank's action plan for its mortgage covered
bond program would meet the criteria by this date. -- We now have reviewed the
mortgage covered bond program based on current criteria to comply with European
Regulations (EC) No. 1060/2009. -- While the issuer is working on putting in
place remedies by the transition date, currently mitigants available to cover in
particular the program's exposure to bank account risk and commingling risk are
not sufficient. -- We are therefore placing our 'AA+' long-term rating on these
mortgage covered bonds on CreditWatch with negative implications. -- We intend
to resolve this CreditWatch placement by affirming or lowering the ratings on or
before the Jan. 11, 2013, transition date to the new criteria. FRANKFURT
(Standard & Poor's) Nov. 28, 2012--Standard & Poor's Ratings Services said today
it had placed on CreditWatch with negative implications its 'AA+' long-term
ratings on the mortgage covered bonds issued by Deutsche Pfandbriefbank AG (PBB;
BBB/Stable/A-2). This reflects our view that the program currently doesn't have
sufficient overcollaterization to cover counterparty risk, according to our new
criteria (for further details see "Covered Bonds Counterparty And Supporting
Obligations Methodology And Assumptions," May 31, 2012, and "Counterparty Risk
Framework Methodology And Assumptions", May 31, 2012). We are undertaking this
review at this point to comply with European regulation (EC) No. 1060/2009 (for
further details see "Issuers' Delays In Meeting Updated Covered Bond Criteria
Might Lead To Several CreditWatch Placements," published Nov. 26, 2012. We are
currently reviewing whether the action plan provided by the bank fully meets
Standard & Poor's new criteria for assessing counterparty risk in covered bonds
by the Jan. 11, 2013. With regard to derivative risk, PBB has confirmed that the
implementation of the action plan has been finalized in line with our new
criteria. With regard to bank account risk and commingling risk, we have
reviewed the currently available credit enhancement and compared it to the
covered bonds' target credit enhancement we deem commensurate to maintain the
'AA+' rating. The CreditWatch placement also reflects the review of the most
recent cover pool characteristics (as of June 30, 2012) and additional daily
cash flow projections (as of Oct. 27, 2012) in this mortgage covered bond
program. We used these to calculate the commingling risk. Based on the currently
available information, we believe that bank account and commingling risk is
currently not sufficiently covered by overcollateralization to still achieve a
seven-notch rating uplift above the 'BBB' issuer credit rating. We observe that
the issuer is undertaking strong efforts to comply with our criteria by the
transition date. We understand that the issuer is in the process of exploring
legal enhancements as remedial action for the increased overcollateralization
requirement, which, when implemented, would reduce the target
overcollateralization. The resolution of the CreditWatch placement will depend
on the extent to which the issuer elects to take remedial action that will
enable the program to meet the rating criteria by the transition date of Jan.
11, 2013--by which time we aim to resolve the CreditWatch placement. We would
expect to affirm the rating if PPB's mortgage covered bond program fully meets
the rating criteria. According to our criteria, we could potentially lower the
rating by one notch if we observed that overcollateralization to cover the
counterparty risk remained at the current level. In such an instance, we would
only give a six-notch uplift above the issuer credit rating, as opposed to the
seven-notch uplift we give at present. POTENTIAL EFFECTS OF PROPOSED CRITERIA
CHANGES Today's CreditWatch negative placement of these covered bonds based is
based on our criteria for rating covered bonds (see "Revised Methodology And
Assumptions For Assessing Asset-Liability Mismatch Risk In Covered Bonds,"
published on Dec. 16, 2009). The assumptions and methodologies used in the cash
flow analysis are currently under review (see "Advance Notice Of Proposed
Criteria Change: Methodologies And Assumptions For Rating Certain Covered Bonds
and CDOs," published on Aug. 5, 2010). The scope of our review may include
changes to our cash flow analysis, where we use Standard & Poor's Covered Bond
Monitor to calculate the target credit enhancement for the covered bonds. This
review may result in further changes to the criteria. As a result, our future
assumptions and methodologies used in our Covered Bond Monitor model may differ
from our current criteria. The criteria change may affect the ratings on all
outstanding covered bonds in this program. Until such time that we adopt new
criteria for rating covered bonds, we will continue to rate and surveil these
covered bonds using our existing criteria (see "Related Criteria And Research").
RELATED CRITERIA AND RESEARCH -- Principles Of Credit Ratings, Feb. 16, 2011 --
A Listing Of S&P's New Actions Aimed At Strengthening The Ratings Process, Feb.
7, 2008 -- Covered bond Ratings Framework: Methodology And Assumptions, June 26,
2012 -- Assessing Asset-Liability Mismatch Risk In Covered Bonds: Revised
Methodology And Assumptions For Target Asset Spreads, April 24, 2012 --
Counterparty Risk Framework Methodology And Assumptions, May 31, 2012) --
Covered Bonds Counterparty And Supporting Obligations Methodology And
Assumptions, May 31, 2012 -- Revised Framework For Applying Counterparty And
Supporting Party Criteria, May 8, 2007 -- Methodology & Assumptions: Applying
The Derivative Counterparty Framework To Covered Bonds, Feb. 26, 2008 --
European Legal Criteria for Structured Finance Transactions, March 23, 2005 --
Revised Methodology And Assumptions For Assessing Asset-Liability Mismatch Risk
In Covered Bonds, Dec. 16, 2009) -- Methodology: Credit Stability Criteria, May
3, 2010 -- Global Investment Criteria For Temporary Investments in Transaction
Accounts, May 31, 2012 -- Cash Flow Criteria For European RMBS Transactions,
Nov. 20, 2003 (not applicable for U.K. programs) -- Methodology And Assumptions:
Update To The Cash Flow Criteria For European RMBS Transactions, Jan. 6, 2009 --
Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And
Assumptions, June 14, 2011) -- Expanding European Covered Bond Universe Puts
Spotlight on Key Analytics (published in July 16, 2004) -- Rating
Pfandbriefe--The Analytical Perspective, Jan. 27, 2003 -- Methodology And
Assumptions: Update To The Criteria For Rating German Residential
Mortgage-Backed Securities, Jan. 6, 2009 -- Assumptions: German Law Change
Affects Mortgage Foreclosure Period Stresses, Nov 28, 2008 -- German Pfandbrief
Framework Further Improved (published March 3, 2004) -- German Index Reports
(published quarterly) -- Issuers' Delays In Meeting Updated Covered Bond
Criteria Might Lead To Several CreditWatch Placements, Nov. 27, 2012 -- What
Factors Do We Consider When Analyzing Commingling And Account Bank Risk In
Covered Bonds, Nov. 26, 2012 RATINGS LIST Ratings Placed On CreditWatch Negative
To From Deutsche Pfandbriefbank mortgage covered bonds AA+/Watch Neg AA+/Stable
Complete ratings information is available to subscribers of RatingsDirect on the
Global Credit Portal at www.globalcreditportal.com. All ratings affected by this
rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left column.
Alternatively, call one of the following Standard & Poor's numbers: Client
Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris
(33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or
Moscow 7 (495) 783-4009. Primary Credit Analyst: Christina D Scheibli, Frankfurt
(49) 69-33-999-313; christina_scheibli@standardandpoors.com Secondary Contact:
Karlo S Fuchs, Frankfurt (49) 69-33-999-156; karlo_fuchs@standardandpoors.com
Additional Contact: Covered Bonds Surveillance;
CoveredBondSurveillance@standardandpoors.com No content (including ratings,
credit-related analyses and data, model, software, or other application or
output therefrom) or any part thereof (Content) may be modified, reverse
engineered, reproduced, or distributed in any form by any means, or stored in a
database or retrieval system, without the prior written permission of Standard &
Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content
shall not be used for any unlawful or unauthorized purposes. S&P and any
third-party providers, as well as their directors, officers, shareholders,
employees, or agents (collectively S&P Parties) do not guarantee the accuracy,
completeness, timeliness, or availability of the Content. S&P Parties are not
responsible for any errors or omissions (negligent or otherwise), regardless of
the cause, for the results obtained from the use of the Content, or for the
security or maintenance of any data input by the user. The Content is provided
on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED
WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR
DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE
CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event
shall S&P Parties be liable to any party for any direct, indirect, incidental,
exemplary, compensatory, punitive, special or consequential damages, costs,
expenses, legal fees, or losses (including, without limitation, lost income or
lost profits and opportunity costs or losses caused by negligence) in connection
with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the
Content are statements of opinion as of the date they are expressed and not
statements of fact. S&P's opinions, analyses, and rating acknowledgment
decisions (described below) are not recommendations to purchase, hold, or sell
any securities or to make any investment decisions, and do not address the
suitability of any security. S&P assumes no obligation to update the Content
following publication in any form or format. The Content should not be relied on
and is not a substitute for the skill, judgment, and experience of the user, its
management, employees, advisors, and/or clients when making investment and other
business decisions. S&P does not act as a fiduciary or an investment advisor
except where registered as such. While S&P has obtained information from sources
it believes to be reliable, S&P does not perform an audit and undertakes no duty
of due diligence or independent verification of any information it receives. To
the extent that regulatory authorities allow a rating agency to acknowledge in
one jurisdiction a rating issued in another jurisdiction for certain regulatory
purposes, S&P reserves the right to assign, withdraw, or suspend such
acknowledgement at any time and in its sole discretion. S&P Parties disclaim any
duty whatsoever arising out of the assignment, withdrawal, or suspension of an
acknowledgment as well as any liability for any damage alleged to have been
suffered on account thereof. S&P keeps certain activities of its business units
separate from each other in order to preserve the independence and objectivity
of their respective activities. As a result, certain business units of S&P may
have information that is not available to other S&P business units. S&P has
established policies and procedures to maintain the confidentiality of certain
nonpublic information received in connection with each analytical process. S&P
may receive compensation for its ratings and certain analyses, normally from
issuers or underwriters of securities or from obligors. S&P reserves the right
to disseminate its opinions and analyses. S&P's public ratings and analyses are
made available on its Web sites, www.standardandpoors.com (free of charge), and
www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be
distributed through other means, including via S&P publications and third-party
redistributors. Additional information about our ratings fees is available at
www.standardandpoors.com/usratingsfees. Any Passwords/user IDs issued by S&P to
users are single user-dedicated and may ONLY be used by the individual to whom
they have been assigned. No sharing of passwords/user IDs and no simultaneous
access via the same password/user ID is permitted. To reprint, translate, or use
the data or information other than as provided herein, contact Client Services,
55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to:
research_request@standardandpoors.com. Copyright (c) 2012 by Standard & Poor's
Financial Services LLC. All rights reserved. In addition to CreditWire, Standard
& Poor's also offers RatingsDirect, the online source for real-time, objective
credit ratings and research; and RatingsXpress, a real-time, customizable
digital feed of credit information. If you are interested in becoming a
subscriber and would like more information on Standard & Poor's real-time
information products and services, please call: HONG KONG (852) 2533-3500;
LONDON (44) 20-7176-7176; MELBOURNE (61) 3-9631-2000; NEW YORK (1) 212-438-7280;
PARIS (33) 1-4420-6758 NORMAL RATINGS S&P Deutsche Pfandbriefbank Mortgage
Covered Bonds On WatchNeg yes