JPM Covered Bond Handbook 2010

Europe Credit Research 21 September 2010

The J.P. Morgan Covered Bond Handbook 2010

A ray of light

European ABS & CB Research

Gareth Davies, CFAAC

(44-20) 7325-7283 [email protected]

J.P. Morgan Securities Ltd.

Flavio Marco RusconiAC

(44-20) 7777-4461 [email protected]

J.P. Morgan Securities Ltd.

Advait Joshi (91-22) 6157 3253 [email protected]

J.P. Morgan India Private Limited

See page 250 for analyst certification and important disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

• We write our 2010 Handbook against a backdrop of increased interest in the covered bond asset class; whether that be from new issuers looking to change their funding mix, new investors seeking to broaden their portfolios, or from lawmakers and regulators looking to provide their originators with another route to market.

• We split the Handbook into two discreet sections, first providing an overview of some of the key elements of the covered bond market as a whole, followed by the second section which looks jurisdiction-by-jurisdiction at the individual issuers that have accessed the international capital markets.

• We tailor this publication towards investors who may be newer to the asset class, setting out first to define the product, and then in recognition of the increasing volume of enquiries we receive about CB from traditional credit investors, to contextualise covered bonds in relation to securitisation.

2


Gareth Davies, CFA (44-20) 7325-7283 [email protected]

Foreword We write our 2010 Handbook against a backdrop of increased interest in the covered bond asset class; whether that be from new issuers looking to change their funding mix, new investors seeking to broaden their portfolios, or from lawmakers and regulators looking to provide their originators with another route to market.

We split the Handbook into two discrete sections, first providing an overview of some of the key elements of the covered bond market as a whole, followed by the second section which looks jurisdiction-by-jurisdiction at the individual issuers that have accessed the international capital markets.

• We tailor this publication towards investors who may be newer to the asset class, setting out first to define the product, and then in recognition of the increasing volume of enquiries we receive about CB from traditional credit investors, to contextualise covered bonds in relation to securitisation.

• We note that the future for the product looks bright, based on both regulatory initiatives which look to encourage the development of covered bond markets on a global basis, and market forces such as the continued dislocation in many of the main securitisation markets.

• We set out a view that the product will morph over time along a number of metrics. First, it will become more relevant as a bank funding tool across more jurisdictions. Secondly, we expect the definition of covered bonds to be stretched to accommodate the respective needs of this expanded issuance universe. Finally, with increased depth and breadth of supply, we expect the investor base to change alongside the product, moving more firmly into the credit universe, with derivative consequences on investor reporting and disclosure.

• We suggest that the optimal model for analysis of the product is based on a joint-venture between the Secured Asset analyst (whether that be the securitisation analyst or a designated covered bond analyst), and the Financials analyst–viewing the covered bond product in a framework of ‘senior (unsecured) bank debt with a higher recovery’ (although we recognise that disclosure has some way to go before true collateral credit analysis can be undertaken).

With this publication, we set out to assist investors in determining their approach to what we believe will be an increasingly important asset class. We hope this Handbook proves useful in this task, and would naturally welcome any feedback on its form or content.

Covered bonds take centre stage

Both regulatory and market forces look set to support the growing importance of covered bonds as a funding source

We expect the product to change with the times

We think bank plus collateral analysis is key to investment success…

3



Table of Contents Foreword ...................................................................................2 Covered Bonds: a “bluffer’s guide”........................................6 Product overview......................................................................7 Market overview .....................................................................14 Regulatory backdrop..............................................................22 Rating Agencies .....................................................................27 Austrian Covered Bonds .......................................................36 Canadian Covered Bonds......................................................42 Danish Covered Bonds ..........................................................50 Dutch Covered Bonds............................................................60 Finnish Covered Bonds .........................................................70 French Covered Bonds ..........................................................76 German Covered Bonds ........................................................94 Greek Covered Bonds..........................................................126 Hungarian Covered Bonds ..................................................130 Irish Covered Bonds ............................................................136 Italian Covered Bonds..........................................................144 Korean Covered Bonds........................................................154 Luxembourgish Covered Bonds .........................................160 New Zealand Covered Bonds ..............................................168 Norwegian Covered Bonds..................................................172 Portuguese Covered Bonds ................................................178 Spanish Covered Bonds ......................................................186 Swedish Covered Bonds .....................................................218 Swiss Covered Bonds..........................................................228 UK Covered Bonds...............................................................232 US Covered Bonds ...............................................................244

4



5



Cov

ered

Bon

d H

andb

ook

2010

6



Covered Bonds: a “bluffer’s guide” We set out below a cheat-sheet for readers new to the asset class, providing a synopsis of the main characteristics of the product and an overview of the major markets.

Table 1: Covered bond cheat-sheet What is a covered bond? Covered bonds are secured, senior, bullet instruments of an issuer (typically a

bank), that provide investors with recourse to both the issuing institution and the underlying, revolving collateral pool.

How do CBs differ from RMBS? The main differences between RMBS and covered bonds can be summarised as: a) amortisation: RMBS generally have a pass-through structure based on the repayment of collateral, while CBs generally have a hard or soft bullet profile; b) credit enhancement: covered bonds have much simpler structures than ABS and rely on over-collateralisation as a form of credit enhancement. This can vary according to the usage of the programme by the issuer but a minimum OC has to be maintained; this is monitored through asset and interest coverage tests typically monitored by third parties, which ensure that the asset pool and its proceeds are enough to match the issuer's CB liabilities. In RMBS, credit enhancement is given by subordination and structural features and, except for certain structures, it generally increases as the deal de-levers; c) unlike securitisation, where investors benefit from recourse to the collateral pool only, CB investors benefit from dual recourse to both the issuer and the cover pool.

What types of CB structures exist? There are three broad CB structures: a) CB can be issued off the balance sheet of the originator, with the collateral pool remaining with the originator, albeit ring-fenced for covered bond investors (for example in Austria and Germany); b) a financial institution establishes a limited function subsidiary, which in turn issues covered bonds (for example France’s OF, Finland); c) in countries without specific CB legislation, CB are typically unsecured obligations of the issuer, with funds raised from the issuance of CB lent to a guarantor (typically a limited liability SPV), which uses the loan to acquire collateral from the originator. This entity then acts as guarantor to the unsecured bonds, agreeing to repay bondholders on insolvency of the issuer (for example UK, Canada, Netherlands, Italy).

What type of collateral is accepted? CB legislation (or transactions docs when no CB legislation exists) typically define the list of collateral eligible to be included in the cover pool. The main types of assets used as primary collateral are public sector exposures, residential and commercial mortgages and shipping loans. In some cases, a max LTV is specified. The EC’s CRD also allows senior MBS (both residential and commercial) issued by securitisation entities, where at least 90% of the underlying mortgages comply with the above rules for unsecured mortgage exposures. The MBS must be rated Credit Quality Step 1, and can only form 10% of the collateral pool (from January 2011, 20% currently). Substitute assets up to a given threshold (typically 10-15%) can also be included in cover pools.

What type of risk are investors exposed to? Investors are generally exposed to issuer's risk until its default, after which they are exposed to the credit risk of the cover pool. If there are CBs outstanding after the cover pool has been extinguished, CB investors will have a residual claim to the bankruptcy estate of the issuer which will rank pari passu with that of senior unsecured bondholders

Do cover bonds accelerate upon the issuer’s default? No, CBs do not necessarily accelerate on insolvency of the issuing institution. Only the failure of the programme to make payments as and when due results in the acceleration of the obligations.

Which jurisdictions are the largest issuers? The largest issuer, by outstanding amount, is Germany, followed by Spain, Denmark, France and the UK. As CBs gain popularity with regulators, issuers and investors, more jurisdictions are starting to push for dedicated covered bond legislation (for example Canada and the US).

Source: J.P. Morgan Covered Bond Research

7



Product overview We set out below to define the core characteristics of the covered bond product, recognising that by making some generic statements, we ignore some of the multiple nuances that issuance from hundreds of issuers and tens of jurisdictions necessarily implies. For more detail on individual jurisdictions, please see the respective country section towards the back of this publication.

What exactly is a covered bond? In a sentence… Covered bonds are secured, senior, bullet instruments of an issuer (typically a bank), that provide investors with recourse to both the issuing institution and the underlying, revolving collateral pool.

Structural Form Covered bonds are typically thought of as bonds issued from the balance sheet of an originating bank, with the revolving collateral pool remaining with the originator, albeit ringfenced for covered bond investors in case of institutional insolvency. This model is deployed in a number of significant issuing jurisdictions (for example, Austria, Germany, Spain and Sweden); however, there are also two other forms of covered bond structures common in a number of jurisdictions.

The most simplistic alternate structure can be accurately described by its name: ‘Specialist Banking Principle’, whereby a ‘full service’ financial institution establishes a limited function subsidiary, which in turn issues the covered bonds, backed by assets transferred from the originator. This form is typical in Ireland, Finland (at least currently) and France (for Obligations Fonciere).

The third variation on issuance form tends to have been adopted by the Anglo-Saxon jurisdictions (UK, Canada, New Zealand etc) along with Italy and the Netherlands. This structure was typically adopted by countries that did not benefit from specific covered bond legislation, but rather adopted securitisation techniques to create a covered bond investment (Figure 1).

Figure 1: Example UK covered bond structure

Bank ABCSeller

ABC CB LLPLLP

Bank ABCIssuer

CB Investors

SwapsProvider(s)

Consideration

Loans & related security

ProceedsCB

Interco loanRepayment of Interco loan

Trustee

Bank ABCSeller

ABC CB LLPLLP

Bank ABCIssuer

CB Investors

SwapsProvider(s)

Consideration

Loans & related security

ProceedsCB

Interco loanRepayment of Interco loan

Trustee


Secured debt with dual recourse to both the issuer and the collateral pool…

Three broad structural forms used in covered bond issuance

8



Under this approach, covered bonds are actually unsecured obligations of the issuer. Funds raised from the issuance of covered bonds are then on-lent to a guarantor entity (typically a limited liability SPV), which uses the loan to acquire collateral from the originator. This entity then acts as guarantor to the unsecured bonds, agreeing to repay bondholders on insolvency of the issuer.

Market participants often refer to 'legislative' and 'structured' covered bond markets, distinguishing between the first two forms described above and the latter (although these terms can be something of a misnomer since many 'structured' markets now also have legislation).

Recourse & seniority Covered bond investors benefit from dual recourse, whereby they have recourse to both the collateral pool backing the specific programme as well as to the estate of the originator on its default. Securitisation investors on the other hand have recourse only to the collateral pool.

Covered bonds remain the obligation of the issuing institution prior to its default similar to any unsecured obligation and irrespective of the collateral performance in the cover pool (non-payment of a covered bond constitutes a default of the institution). Only after an institution’s default does the primary source of programme payments switch to the cover pool itself. Subsequently, should the pool prove insufficient to repay all outstanding obligations under the programme, covered bond investors will have further recourse to the bankruptcy estate of the issuer. These residual claims would rank pari passu with those of other senior (unsecured) bondholders.

Collateral Covered bond legislation typically defines the list of collateral eligible to be included in a cover pool. The main types of assets used as primary collateral (substitute assets are also eligible in cover pools up to a pre-defined threshold, typically 10-15%) are public sector exposures, residential and commercial mortgages and shipping loans. As the product expands its geographic reach beyond its traditional home in Europe, the list of eligible (primary) assets looks set to expand. Legislative proposals currently winding their way through the US Congress look set to expand the definition of eligible assets to include student loans, credit cards, auto loans and leases and SME loans. Kookmin Bank of Korea has also issued a covered bond backed by both mortgage and credit card collateral.

In the EU, the primary source of guidance is provided in the Capital Requirement Directive1 (CRD), which sets out the following:

• Exposures to public sector entities (central governments, central banks, PSEs, regional governments and local authorities in the EU)

• Exposures to public sector entities (central governments, central banks and MDBs qualifying as Credit Quality Step 1, PSE, regional governments and local authorities not in the EU falling into Credit Quality Step 2 cannot exceed 20%)

• Exposures to institutions in Credit Quality Step 1, not to exceed 15%

1 http://register.consilium.europa.eu/pdf/en/10/st11/st11527.en10.pdf

Only after issuer default does the primary source of investor cashflows become the cover pool

Most common form of collateral used remains mortgages, followed by public sector assets

9



• Residential (80% LTV limit) and commercial mortgage loans (60% LTV limit, or 70% if an issuer provides a minimum of 10% over-collateralisation)

• Senior MBS (both residential and commercial) issued by securitisation entities, where at least 90% of the underlying mortgages comply with the above rules for unsecured mortgage exposures. The MBS must be rated Credit Quality Step 1, and can only form 10% of the collateral pool from January 2011. For the 10% limit to be waived, the MBS must be self-originated and the originator must retain the first loss piece

• Loans secured by ships (60% LTV limit)

Derivatives are also permitted in certain jurisdictions to hedge specific risks including interest and foreign exchange exposures.

Cover pools backing covered bonds are dynamic in nature, with investors essentially assuming the credit risk of the cover pool only upon issuer default.

Insolvency Covered bonds do not necessarily accelerate on insolvency of the issuing institution. Only on the failure of the programme to make payments as and when due results in the acceleration of the obligations.

Covered bonds vs. RMBS Mortgage backed covered bonds and RMBS have more than a passing similarity to each other (especially when considering the market-reopening UK master trust RMBS bonds issued in Q3 2009-Q1 2010 which contained an originator put at maturity). However, there are also some notable structural differences between the two products. We set out to highlight the most prominent below.

Definitions The ECBC2 sets out a definition of a covered bond as follows:

‘Covered bonds are debt instruments secured by a cover pool of mortgage loans (property as collateral) or public-sector debt to which investors have a preferential claim in the event of default.’

More fully, the BIS sets out a definition of securitisation in its ‘International Convergence of Capital Markets and Capital Standards’3 document:

‘A traditional securitisation is a structure where the cash flow from an underlying pool of exposures is used to service at least two different stratified risk positions or tranches reflecting different degrees of credit risk. Payments to the investors depend upon the performance of the specified underlying exposures, as opposed to being derived from an obligation of the entity originating those exposures.’

As we can see from the above BIS definition, covered bonds fail to meet this test on a number of fronts. First, as we have already noted, cashflows from the underlying pool are not necessarily used to service the covered bonds, but rather the general

2 http://ecbc.hypo.org/Objects/9/Files/ECBC%20Fact%20Book%202010.pdf 3 http://www.bis.org/publ/bcbs128.pdf?noframes=1

Credit risk of the cover pool remains with the issuer until default, upon which it transfers to the investor

Covered bonds do not meet the international definition of securitisation

10



resources of the issuing institution are utilised. Second, with the exception of Danish junior covered bonds, there are no stratified risk positions or tranches reflecting different credit risk profiles in covered bonds. Finally, payments to investors do not depend on the performance of the underlying exposures while the issuing entity remains solvent. The credit risk of the cover pool is not transferred until issuer insolvency.

Amortisation European securitisation bonds typically amortise over time through the repayment of the underlying exposures (a notable exception to this are UK credit card and mortgage master trusts which offer investors soft-bullet bonds). Distributed covered bonds typically utilise a hard or soft-bullet redemption profile (there are some pass-through covered bonds, but these have typically been retained by originators for use as central bank repo collateral).

It should be noted here that a soft-bullet covered bond does not offer the issuer the option of extending the maturity of the outstanding notes. Rather, the soft-bullet extension can only be utilised following a failure to pay event (i.e. issuer insolvency), allowing the administrator an extended period (typically 12 months) to achieve sufficient liquidity to repay the due payment.

Credit enhancement & Investor protections Covered bonds are less structurally engineered than even the simplest type of pass-through securitisation vehicles (even setting aside the complexities of ABS master trusts). To this end, covered bonds do away with much of the credit enhancements offered to securitisation investors (subordinated tranches, reserve funds, excess spread etc). Rather, covered bond investor’s main form of credit enhancement stems from programme over-collateralisation, (which is naturally dynamic based on issuer actions including collateral additions and the programme issuance/redemptions profile). Unlike in securitisations, where credit enhancement tends to increase over time as the structure delevers (barring collateral credit issues and the specific case of master trusts), over-collateralisation in covered bond programmes can increase or decrease as the programme is utilised by the issuer.

Further investor protection is provided to CB investors by tests adopted in local legislation or programme terms. For example, structured covered bond programmes (i.e. Canada, Netherlands, UK etc) typically require that the assets of the guarantor entity are subject to an Asset Coverage Test (ACT) on a regular basis. The test is designed to ensure a minimum level of over-collateralisation in the cover pool to protect investors from market and liquidity risks. The guarantor must therefore ensure that on each calculation date, the ‘Adjusted Aggregate Loan Amount’ (i.e. the aggregate loan amount haircut by predefined criteria) is at least equal to the outstanding amount of the programme’s CB. The ACT is conducted by the Cash Manager, with annual third party asset monitor reviews. Failure to remedy a breached ACT by the next calculation date usually results in an Issuer Event of Default.

Similarly, programmes from these jurisdictions also typically include an Amortisation Test (AT) which is designed to ensure that the cover pool exceeds the outstanding notional of CB at all times. The adoption of an AT serves to minimise time subordination within the structure for outstanding noteholders. Following service of a Notice to Pay on the guarantor, it must ensure that on each calculation

Repayment profiles differ between the two secured products

Over-collateralisation and programme tests are the main types of credit enhancement for CB investors

11



date following an Issuer Event of Default, the Amortisation Test Aggregate Loan Amount will at least equal the aggregate outstanding amount of the CB.

Other tests offering protection to bondholders include ‘Pre-maturity Tests’ (which are designed to ensure the borrower can provide sufficient liquidity in case of downgrade (i.e. pre-defined period prior to scheduled bond redemption, if a borrower's short-term rating is below a prescribed threshold, the borrower must fund a cash collateral account to ensure redemption)); and ‘Interest Coverage Tests’ to ensure interest from the cover pool after hedges always exceeds interest payments due on the covered bonds over a given period.

The product of today… Stock Figure 2 below sets out the outstanding volume of covered bonds by the largest five jurisdictions.

Figure 2: Covered Bond outstanding, €mm

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2003 2004 2005 2006 2007 2008 2009

Germany Spain Denmark France UK Other

Source: ECBC

Figure 3: Covered Bond issuance, €mm

0100,000200,000300,000400,000500,000600,000700,000

2003 2004 2005 2006 2007 2008 2009

Mortgage Public sector Ship Mix ed assets

Source: ECBC

According to the ECBC, at the end of 2009 outstanding covered bonds totalled €2.4trn. The top five jurisdictions (Germany, Spain, Denmark, France and the UK) account for the 80% of the total. The smaller jurisdictions, however, are experiencing some of the highest growth rates, with outstanding volumes in Italy, Greece, Austria, Canada and the Netherlands, amongst others, growing at double digit rates.

Mortgage covered bonds remain the largest bond type, accounting for two thirds of the outstanding volumes, while only one fifth of outstanding bonds are of floating rate nature.

The majority of covered bonds (88%) are denominated in the issuer’s domestic currency, according to the ECBC. The euro remains the dominant currency (70% of outstanding bonds) and it is gaining ground in jurisdictions such as the UK and Norway.

Flow Total 2009 issuance of covered bonds amounted to €529bn (ECBC), down from €651bn in 2008. In the first eight months of this year, covered bonds issued amount to €218bn, compared to €182bn at the same point in time last year, according to Dealogic data.

Denmark proved to be the most prolific issuer in 2009, accounting for roughly a quarter of total issuance, although most its issuance was DKK-denominated and sold domestically. The largest €-denominated issuance came from Germany, at €110bn.

12



The share of mortgage covered bonds has increased over time, from 51% in 2003 to 81% in 2009, at the expense of public sector collateral (from 46% of issued volumes in 2003 to 16% in 2009). Jumbo issuance rose both in absolute terms (up 20% to €257bn) and as a share of total issuance, accounting for 49% of bonds issued in 2009, up from a third in 2008.

The product of tomorrow… While we do not expect significant changes in the form of the product distributed to investors in the existing covered bond markets of Europe, we do however expect to see covered bonds becoming an increasingly important bank funding tool across more jurisdictions. As the product spreads, the scope for expanding the definition of what should be considered a covered bond also naturally increases.

Bank funding Covered bonds form one element of a bank’s potential funding sources alongside deposits, unsecured bonds (both senior and subordinate), equity and securitisations. After the stresses afflicting the banking sector over the immediate past subside, we see both regulatory and market developments supporting the role of covered bonds.

Regulatory moves (further discussed in a later section) naturally change the emphasis placed on each of the available funding alternatives. A recent publication from our Financials colleagues (see ‘The Ins and Outs of Bail-Ins: Regime Change for Bank Senior Debt?, 6th September 2010) explains that the recent regulatory discussions on bank bail-ins marks a significant shift in terms of the perceived risk profile of senior unsecured bonds, which is likely to result in changes in the funding patterns of issuers. Explicitly, they note:

“Increase in covered bond issuance Given the higher risk premiums for senior unsecured debt, we expect issuers to resort to sources of funding that mitigate these higher premiums which investors may demand. To this extent, we expect that issuers may increasingly resort to secured lending, such as covered bond issuance, which would in effect mitigate the potential downside of bail-in regimes. By resorting to covered bond issuance, the loss given distress would likely be limited given the priority pledge on a collateral pool, with the losses only accruing in the event that there is a shortfall in the value of the collateral assets. In addition, we note that covered bond investors would then have a pledge on the remaining assets of the issuer pari-passu with senior unsecured bondholders for any shortfall in the value of the collateral pool.

As such, covered bonds would seem an increasingly optimal solution and should benefit on a relative basis versus senior debt in terms of lower risk. First, given that covered bonds are still linked to the risk profile of the issuer, they will benefit from stronger sector regulation, which should reduce the possibility of distress for the issuer. However, the loss given distress will be lower for covered bonds due to the collateral element than for senior, implying that it is the asset class that gets the best of both worlds. This more favourable positioning of the covered bonds should imply lower funding costs relative to senior and should stimulate a greater reliance on this as a funding tool.”

Furthermore, we note that market forces are also promoting the role of covered bonds as a funding source. With much of the European securitisation markets remaining

Covered bond issuance appears as the most viable alternative, with bondholders unlikely to be impaired due to the collateralised nature of the instruments, which will mitigate any attempts at loss sharing

13



closed to issuers, covered bonds have increasingly been used to divert potential secured bond supply. As long as these markets remains shut to originators, we expect to see covered bonds take an increasingly prominent role in the funding of the region's banks.

Going global As we have already noted, the ‘roll out’ of covered bonds across ever-more jurisdictions is one of the most obvious developments since our last Handbook (2008). Canada, Korea and New Zealand have all accepted covered bonds as a feasible funding alternative in this period, often mimicking the majority of features seen in the product traditionally distributed in Europe. While this internationalisation has resulted to date in more potential for investor diversification, rather than product redefinition, we believe the nascent moves to establish a U.S. covered bond market could have the opposite effect.

United States While legislative moves in the US to establish a legal framework for covered bonds continue to grind their way through Congress, the initiative throws up one particularly interesting question in our view. Depending on the underlying premise for the establishment of a US covered bond regime, we believe the impact of its adoption on the global covered bond market could be very different.

If the purpose of the regime is to create an additional funding source for US financial institutions in the international capital markets (essentially selling US covered bonds to the existing covered bond investor base) we believe the main impact will be on additional supply, rather than product redefinition. In short, we believe that the existing, predominantly European investor base will require any new US covered bond product to resemble the features of the existing European bonds.

However, if the reasoning behind the current regulatory moves is to create an additional funding tool that is to be predominantly sold domestically, then legislators will naturally design the regime to suit local investor needs. Under this approach, we can easily envisage a world where the US adopts the label of covered bonds, but radically redefines what the current definition of what a covered bond should look like – for example, alternative collateral types (credit cards, student loans, auto receivables), and note features (floating rate, amortising bonds etc).

Shining the light With both the expected expansion of issuance from existing covered bond jurisdictions and the adoption of covered bonds as a funding tool in additional countries, we expect the investor base to noticeably change over the medium term. We would expect the incremental investor to come with an increasingly 'credit mindset' thereby necessitating the provision of additional cover pool disclosure by issuers. This investor-led pull, along with nascent moves by regulators (in particular, Bank of England and Banco de España) to push covered bond disclosure forward, may well come as something of a surprise to some traditional CB issuers, but will ultimately result in a broader and deeper covered bond investor base in our view.

America’s adoption of covered bonds is likely to redefine the product

Disclosure requirements will only increase for covered bond issuers

14



Market overview Primary market overview Issuance patterns Covered bond issuance has been relatively strong this year, with €204bn issued so far in 2010, despite the sovereign crisis and the end of the ECB purchase programme (between July 2009 and June 2010, the ECB bought €89bn of covered bonds, of which €17bn was on the primary market).

According to Dealogic figures, the largest contributors are Germany (€51bn) and France (€31bn). Despite being one of the countries at the centre of investor concerns during the sovereign crisis and the significant changes taking place within its banking system, Spain has so far issued €23bn; in fact, after a two-month lull in May and June, Spanish banks returned to the market in July, issuing in excess of €8bn during the traditionally quiet summer months. This is despite the significant risk premiums demanded by investors to buy their bonds.

Pricing in the primary market broadly reflects the theoretical subdivision of jurisdictions between ‘inner core’, ‘outer core’ and peripheral (discussed later). German and French bonds continue to be the most expensive bonds, as investors view their frameworks as the most solid and well established. One investment approach in this case is often to buy the widest available paper in the respective jurisdiction (effectively considering sovereign credit risk ahead of institutional credit risk). Canadian bonds also tend to price in line with the core jurisdictions thanks to the wrap on the underlying mortgages from the Government of Canada. ‘Outer core’ paper, including Italian, UK and Scandinavian issuers, lacks the “must buy” appeal of the inner core jurisdictions, therefore pricing wider, while new (Korea) and less favored jurisdictions (at least temporarily, such as Spain) price at the widest levels.

Positively for the market, jurisdictions that have recently started issuing covered bonds have continued to show commitment to the asset class. Canadian banks in particular have been tapping the market frequently, issuing $-denominated wrapped (underlying mortgage-backed) paper, which investors perceive as ‘cheap’ Canada risk. This has also been driving up $-denominated issuance, at €14bn already–almost 6 times 2009 full year volumes.

2010 has also seen some progress in broadening the universe of covered bond jurisdictions. Bank of New Zealand launched the first Kiwi covered bond, as did Korea Housing Finance Corporation (first pure play resi covered bond), while announcing its intention to issue $2bn of covered bonds annually starting from 2011. Furthermore, the number of covered bond issuers seems bound to expand further in the near-term, as several jurisdictions, both new (such as Australia) and “old” (such as Canada and the US, amongst others) are considering the value of adopting dedicated covered bond legislation.

15



Secondary market overview Spread developments Covered bonds spread, like those of most other asset classes, were pushed wider by the sovereign crisis that affected Europe during 2010. This opened up new buying opportunities for investors that were unable to put as much capital to work as they would have liked during the previous widening in Q4 08-Q1 09.

The widening of covered bond spreads during the sovereign crisis has not been uniform, as issuers from jurisdictions that were perceived to have a weaker sovereign quality widened more than those from more solid jurisdictions (Figure 4 and Figure 5). This is because banks and the banking system of a country in general often have strong links with the country’s sovereign quality, both because this is seen as the ultimate provider of support to banks in difficult times but also because banks are large holders of sovereign debt. Therefore, it is not surprising that investors lost relatively more appetite for bonds from less stable sovereigns. These dynamics are also driven by the top-down approach adopted by the majority of traditional covered bond investors, whereby the analysis begins with a view on the strength of the covered bond framework and of the sovereign creditworthiness, before trickling down to the issuer and, less frequently, to the cover pool.

Figure 4: UK Covered Bond and Sovereign CDS spreads

050

100150200250300350

Jan-

08

Apr-0

8

Jul-0

8

Oct-0

8

Jan-

09

Apr-0

9

Jul-0

9

Oct-0

9

Jan-

10

Apr-1

0

Jul-1

0

UK CB 3 - 5 Years UK 5y rs Sov CDS

Source: Bloomberg, J.P. Morgan Covered Bond Research

Figure 5: Spanish, Covered Bond and Sovereign CDS spreads

0

50

100

150

200

250

300

Jan-

08

Apr-0

8

Jul-0

8

Oct-0

8

Jan-

09

Apr-0

9

Jul-0

9

Oct-0

9

Jan-

10

Apr-1

0

Jul-1

0

Spain CB 3 - 5 Yr Spain 5y rs Sov CDS

Source: Bloomberg, J.P. Morgan Covered Bond Research

Covered bonds vs. the rest Covered bonds generally trade tighter than the senior unsecured debt of the issuing bank and also the RMBS issued by the same originators. This is largely due to two main factors intrinsic to the nature of covered bonds, and often difficult to consider separately:

• Liquidity: covered bonds, even after the end of market making requirements, should generally be considered a more liquid asset class than RMBS (although we would argue that UK and Dutch RMBS are of a similar liquidity to their covered bond equivalents, in other countries such as Spain, we see covereds clearly having a liquidity edge over RMBS). While it is true that covered bond markets, both primary and secondary, remained at least partially open throughout the darkest times of the past three years, liquidity can disappear quicker than investors can react, as seen in Q4 2008-Q1 2009 and to a lesser extent during the recent sovereign turmoil, pushing spreads to levels that are many times multiples of historical levels. Liquidity in the covered bond universe is in large part driven by the strength of the legal framework adopted in each jurisdiction and by other macro factors such as its sovereign creditworthiness and the health of its banking system.

16



• Risk: another factor contributing to the greater liquidity and tighter pricing of covered bonds is the perceived safety of the instrument and the systematic role played by the product in bank funding in a number of jurisdictions, thanks to the full recourse to both the cover pool and the lender. But is such perception justified? One could argue that there is a strong correlation between collateral quality and strength of the lending bank; in fact, weak mortgage assets are one of the causes that have led to a number of banks requiring the support of governments or central banks. The case is even stronger for monoline banking institutions, where the low quality of the collateral effectively weakens both the value of recourse to the cover pool and to the lender itself.

Investor overview The current investor base As of today, the majority of investors continue to be based in Europe, with a significant proportion of accounts in the traditional markets of France and Germany. The product is predominantly bought by bank (both private sector and central banks) and real money investors (particularly insurance and pension funds). Overwhelmingly these assets are sold into the Rates desks of these institutions, rather than Credit.

The future investor base With the potential for increased issuance stemming from both regulatory initiatives and the continued closure of significant parts of the European securitisation markets (see earlier section), combined with an expanded issuance footprint as more jurisdictions adopt covered bonds, we envisage both an expanded, and more diverse investor base. We believe this new breed of investor will have been more traditionally exposed to Credit investments (either transferring some focus from the now smaller securitisation or senior unsecured markets, or assuming coverage of this product from scratch).

We expect this shift in make-up of the investor base to lead to a shift in analysis model deployed, and therefore to also necessitate a shift in the disclosure provided by covered bond programmes.

How do you analyse it? We spend a lot of our time discussing with clients (and colleagues alike) on the 'correct' classification of the covered bond product with an institution, and more importantly, once decided ‘where’ to put it, then ‘how’ to analyse it. Recognising that there is often no definitive answer, we set out below the common threads of discussion, and with it, our own thoughts on the questions posed.

Rates or credit? As noted above, the existing investor base overwhelmingly considers covered bonds as a rates product. Taking a quality spectrum, most investors see Covered Bonds sitting in the following position: Sovereigns-Agencies-Covered Bonds (i.e. it can be considered the ‘weakest’ rates product).

We however consider this somewhat inappropriate, preferring to think of Covered Bonds as one of the strongest Credit products (i.e. Covered Bonds-Securitisation-Senior unsecured, etc.). While this ultimately looks like semantics, we believe the

Traditionally invested in by rates investors…

…we expect to see increased engagement with credit investors over time

Analysis paralysis?

We see covered bonds as the strongest credit product

17



appropriate classification is fundamentally important, having a bearing on the correct analysis approach required to be undertaken for investment.

Irrespective of your starting point in an analysis of the risks of covered bonds, we identify credit risk: at the sovereign level (in terms of potential bail out of the issuing institution), at the issuing level (in terms of probability of default of the issuer) and at the collateral pool level (in terms of recovery). With the expansion of the issuance footprint to include other traditional securitisation markets (Canada, New Zealand, US and potentially Australia) we expect to see an inexorable move to a more ‘credit mindset’ in the analysis of covered bonds.

Top down or bottom up? Top down Traditionally, the model of analysis undertaken by the investor base has relied upon a predominantly top-down approach to covered bond programme analysis. This approach starts at the level of the sovereign, both in terms of legislative framework and the respective willingness and ability of the sovereign to support an issuer in the event of difficulty (essentially 'Does country XYZ have a willingness and ability to support Bank ABC? If yes, I can have comfort in ABC’s covered bond programme’).

This approach essentially deals with the probability of default (PD) element of the expected loss calculation, which offers only a cursory evaluation of the other element to be considered, loss given default (LGD). In our view, this is a clear limitation of the approach.

Bottom up An alternative approach is similar to that utilised by securitisation analysts, where you start at the collateral pool and work your way upwards. This approach also has its limitations, not least that the credit risk of the cover pool is not assumed by the investor until issuer insolvency, but more practically, disclosure around cover pools is often woefully inadequate to run any meaningful collateral analysis. This approach essentially deals only with the LGD element of the loss calculation.

In our view, this is a clear limitation of this approach. While we expect disclosure to improve over time as more investors insist on additional transparency, we suggest investors use a hybrid approach to covered bond analysis.

Hybrid approach We therefore suggest an approach which combines the best elements of both these approaches. This does not necessarily result in what can be considered an entirely ‘clear-cut’ methodology to the identification of programme risk, but it does allow investors to utilise a mosaic approach, essentially equating covered bonds to ‘senior unsecured risk with higher recoveries due to the collateral pool’.

In our suggested approach, we start with a top down overview of the jurisdiction (in terms of legislative overview and an assessment on the willingness and ability of the state to support an issuing bank) and then an analysis of the bank itself (outsourced to the Financials credit analyst). In addition to this however, we then encourage investors to take a ‘securitisation’ approach to looking at the collateral pool–building up a picture of the quality of the collateral at the investor's disposal should the institution become insolvent (we recognise that this may be easier said than done in practice based on the current level of disclosure in investor reports, but initiatives by

Top down often overlooks the value of the collateral pool

Bottom up overlooks the potential for regulatory intervention

We think of covered bonds as having the same PD as senior bank debt, but with lower LGDs

18



central banks and other regulators to nudge the market towards additional disclosure, plus the potential influx of ‘more demanding' Credit investors should move the market in the correct direction).

Jurisdiction tiering While there is no definitive list of characteristics used to classify the perceived importance of the various covered bond issuance jurisdictions (see later section, for example, for S&P’s explicit classification), investors have traditionally tended to approach the market from this perspective. We set out our view below:

‘Inner core’ jurisdictions Three jurisdictions jump to the fore when considering the longest-standing and most established covered bond markets: Denmark, France and Germany. Most covered bonds issued out of these jurisdictions offer a greater degree of liquidity and are supported by a strong domestic investor base.

These bonds tend to price the tightest in the new issue market. Individual issuer credit risk is perceived to be of less importance in these markets owing to the systemic importance of the produce to the respective jurisdiction.

‘Outer core’ jurisdictions This second classification includes other Western European jurisdictions although, in our view, Canada warrants elevation to the ‘Outer Core’ group of countries following its significant adoption of the asset class as an important funding tool across its banking system.

Within this segment we include Spain, UK and the Netherlands. These countries offer investors spread pick-up to the ‘inner core’ jurisdictions.

Peripheral jurisdictions Jurisdictions recently joining or about to join the covered bond community, including Korea, New Zealand and the US.

Overview of Frameworks Below we produce a table summarising and comparing the different frameworks of the main issuance jurisdictions. Overviews for the other issuing countries are set out at the start of each segment at the back of this publication.

19



Key Markets Summary Table 2: Covered bond overview Attribute Germany Spain Denmark France UK Legislative Framework

Three different frameworks for covered bond issuance: Mortgage Banking Law of 1899 (Hypothekenbankgesetz); Law on Secured Bank Bonds (Gesetz betrffend fundierte Bankschuldverschreibungen (FBS) 1905) and Mortgage Bond Act (Pfandbriefgesetz as amended 2005)

Special law-based covered bonds. Mortgage Market Law 41/2007, Law 2/1981, Royal Decree 716/2009, Law 22/2003

Danish Mortgage Credit Loans & Mortgage Credit Bonds etc Act. Executive Order No. 718 of 21 June 2007 on the Issue of Bonds, the Balance Principle and Risk Management; Bill No. 577 of 6 June 2007 amending the Financial Business Act 454 of 10 June 2003.

Act. No 99-532 of 25 June 1999; Decree No 99-655 of 29 July 1999; Decree No 99-710 of 3 Aug 1999; regulation No 99-10 of the banking and finance regulation committee on SCF; Art. 16 of Act No 69-1263 of 31 December 1969

Previously a contract-law based covered bond regime. The Regulated Covered Bonds (RCB) Regulations 2008 (as subsequently amended), now provides the legislative framework for UK covered bond programmes. UK CB can therefore be either contract-law or legislative covered bonds.

Structure of Issuer Bonds are issued directly off the balance sheet of the lender. Assets are segregated on bankruptcy of the issuer

Issuers are either specialist or universal credit institutions; the collateral is kept on the balance sheet of the issuer and not transferred to a separate legal entity. Bondholder claims are guaranteed by the entire mortgage book of the lender that is registered in the cover register

Both specialised mortgage credit institutions (who have restrictions on the scope of their banking activities) and also licensed credit institutions (essentially commercial banks).

Bonds are issued by a specialised credit institution (Societe de Credit Foncier or SCF) with authorisation from the Credit Institution and Investment Companies Committee (CECEI). SCF are limited by law in their range of business activities

UKCB are issued by credit institutions, where the CB are direct, unsecured, unsubordinated and unconditional obligations of the Issuer. Under the typical structure, the Issuer lends the sums received from bond issuance to a guarantor (usually a Limited Liability Partnership, or LLP), with the LLP using the funds to purchase collateral from the originator. Under this structure, the LLP agrees to guarantee the Issuer’s obligations to covered bond investors, collateralising the guarantee with the purchased loans and securities acquired from the Issuer. This structure is similar to that used in the Netherlands.

Supervision Financial Market Authority and Ministry of Finance, along with both a primary and secondary (back-up) trustee. For FBS, the collateral pool is monitored by a government commissioner

Bank of Spain, Ministry of Economy and Commerce, CNMV (Spanish Securities Commission)

Danish FSA French Banking Commission Financial Services Authority

20



Attribute Germany Spain Denmark France UK Cover assets Broadly, two types of collateral are

allowed: mortgages (60% max LTV) and public sector assets. Only EEA, CH and domestic collateral allowed, but the preferential claim on pfandbrief holders must be recognised. If not, a cap of 10% is deployed. For public sector assets, the geographic scope is the same, but assets must have a risk-weight lower than 20%. FBS may also include bonds with “Mundelgelder” (“safe bond”) status Cash, credit institution debt, assets available for use at the ECB, public sector debt from acceptable jurisdictions (see above) are available for use as substitution assets, up to a cap of 15%.

Residential mortgages (max 80% LTV), commercial mortgages (max 60% LTV); if there are additional guarantees, LTVs can be raised to 95% and 80% respectively. No loans or part of loans are allowed if LTVs are above limits. Public sector exposures to EEA countries back public sector covered bonds in the form of loans or credits to central governments, local authorities or public companies linked to such institutions

Separate ‘capital centres’ or cover pools maintained for different types of issues or assets. Public assets, ship loans (max LTV 70%), bank debt (SDO’s only), mortgages (max LTV 80% for residential, 70% for agricultural and 60% for commercial properties). For public sector assets, there is a cap of 20% of the pool for 20% risk-weighted exposures. Substitute collateral can constitute a maximum of 15% of the pool. Derivatives are also allowed into the pool.

Mortgages: max LTV 60%, 80% for loans used to finance the purchase or construction of a property and 100% for loans with a personal or FGAS guarantee; guaranteed loans must not exceed 35% of SCF assets Public entities: debt issued or guaranteed by a public entity. Senior units and debt securities senior units and debt issued by securitisation vehicles or similar entities where the entity is governed by the law of a EEA country, USA, Japan, Switzerland, Canada, Australia and New Zealand; limited at 20% of OF's principal value. Promissory notes: must not exceed 10% of an SCF’s assets. Substitute collateral: must not exceed 15%of privileged liabilities of the SCF

Owing to the (initial) non-statutory nature of the UK covered bond framework, originators typically define their own eligibility criteria (see individual programme snapshots). Most programmes are backed by UK residential mortgages, with Bank of Scotland’s Social Housing CB programme being the exception. Substitution assets consisting of highly liquid, non-mortgage assets are also eligible for inclusion, up to certain, pre-defined programme limits. Derivatives can be used.

Valuation Individual market values for pfandbrief and FBS

Properties are valued by the lender or by a valuation company. If the value of the property falls by over 20%, the lender has the right to ask the extension of the loan to other assets to cover the required the 80% LTV limit; if the borrower does not take any action within two months, the lender can assume that it has decided to repay the loan in full

Individual market value. Prescribed standards. Commercial properties must be valued each year if value >€450k and loan balance >€360k or every 3yrs if loan balance <€360k

Individual market values

21



Attribute Germany Spain Denmark France UK ALM matching Eligible assets must be 102% of

liabilities at all times on a nominal basis. Derivatives can be used to help meet cashflow requirements. FBS set their own over-collateralisation requirements in their articles of association.

Liabilities have to be no more than 80% of assets for mortgages (70% for public sector covered bonds) at minimum, with minimum OC set by law (see below). Derivatives are allowed to manage risk

NPV of cover pool has to be above liabilities’ value at all times; cashflows from pool and derivatives should be enough to cover payments on liabilities. Issuers have to adhere to one of the general and the specific balance principle (imposes limits on interest rate and currency risk, while also imposing matched funding requirements).

Nominal and present value of assets has to be greater than nominal and present value of o/s bonds. Coverage ratio must exceed 100%. When calculating coverage ratio the weights are: 100% for exposure to public companies, mortgage loans, units and debt if guarantor has credit rating falling in Quality Step 1 (50% if Quality Step 2, 0% otherwise), 95% for substitute collateral

Shelves must also comply with programme requirements, including: Pre-maturity tests are designed to ensure the borrower can provide sufficient liquidity in case of downgrade (i.e. pre-defined period prior to scheduled bond redemption, if a borrower's short-term rating is below a prescribed threshold, the borrower must fund a cash collateral account to ensure redemption). Amortisation tests are designed to ensure the issuer has the capacity to meet its obligations following a borrower EOD. Asset Coverage tests are designed to ensure that pool collateral is sufficient to meet future interest and principal cashflows on the outstanding covered bonds

Over-collateralisation

Required 2% Minimum OC of 25% for mortgages and 43% for public sector exposures is legally required. If minimum OC breached, there is a grace period of 10 days for mortgage collateral and 3 months for public sector collateral

No minimum requirement for commercial banks but specialist mortgage banks have to maintain 8% of RWA.

Required by law: assets >100% of o/s amount of privileged debt

Requirements prescribed by the issuers. Nominal value of assets has to be greater than principal amount of o/s bonds, plus the costs associated with running the programme.

Bankruptcy remoteness

Issuer is required to have a register to record the cover assets

All assets are recorded on the cover register, no acceleration in case of insolvency of the issuer

Segregated assets in cover register. No automatic acceleration in case of bankruptcy. Derivatives counterparties rank pari passu with bondholders.

In case of default, no new additions to the pool are allowed and no new debt is issued

Similar to the Netherlands, in case of insolvency of the originator, the issuer exercises the financial guarantee over the pledged assets; if the issuer is insolvent, assets are transferred to an SPE

Compliance with EU legislation

UCITS and CRD compliant UCITS and CRD compliant UCITS and CRD compliant. UCITS and CRD compliant Dependant on programme, but generally UCITS and CRD compliant for RCBs

Source: ECBC

22



Regulatory backdrop Aside from the legislative or regulatory frameworks defining the shape and form of the covered bond issuance markets in the various jurisdictions, there are also a number of regulatory initiatives which affect covered bond investors. We set out below an overview of the main investor-focused regulations.

Basel II Basel II does not specifically deal with the treatment of covered bond holdings, rather treating the secured bonds as equivalent to their unsecured cousins. The Capital Requirements Directive (CRD) which implements Basel II in Europe does however set out beneficial capital charges for covered bond portfolios held by bank investors. Bonds will benefit under the CRD if they comply with the following criteria:

• Compliant with Article 22(4) of UCITS (see later section)

• Asset pools backing the covered bonds are constituted only of assets of specifically defined types and credit quality

• Exposures to public sector entities (central governments, central banks, PSEs, regional governments and local authorities in the EU)

• Exposures to public sector entities (central governments, central banks and MDBs qualifying as Credit Quality Step 1, PSE, regional governments and local authorities not in the EU falling into Credit Quality Step 2 cannot exceed 20%)

• Exposures to institutions in Credit Quality Step 1, not to exceed 15%

• Residential (80% LTV limit) and commercial mortgage loans (60% LTV limit, or 70% if an issuer provides a minimum of 10% over-collateralisation)

• Senior MBS (both residential and commercial) issued by securitisation entities, where at least 90% of the underlying mortgages comply with the above rules for unsecured mortgage exposures. The MBS must be rated Credit Quality Step 1, and can only form 10% of the collateral pool from January 2011

• Loans secured by ships (60% LTV limit)

• Issuers of covered bonds backed by mortgage loans must meet certain minimum requirements regarding mortgage property valuation and monitoring

For banks under the Standardised Approach holding positions meeting the above criteria, the riskweights are set out below. For bonds failing to meet the above criteria, the riskweights are as for the institution itself.

Table 3: Standardised approach risk weights Institutional Rtg AAA-AA A-BBB BB Below B Institutional RW 20% 50% 100% 150% CB RW 10% 20% 50% 100% Source: BIS

For banks under the Internal Ratings Based (IRB) Approach, they must use the same formula as for institution and corporate riskweights. The inputs are a PD based on the issuing bank’s rating (subject to a floor of 3bp), a reduced LGD of 12.5% (or even

Regulations do not just affect originators…

23



11.25%), with a fixed maturity (5 years) for Foundation banks, and the maturity of the position itself for Advanced banks.

BIS Liquidity proposals The Basel Committee published a consultation paper late last year in order to define minimum short and long term liquidity requirements for banks. The Committee set a liquidity coverage ratio, requiring banks to hold unencumbered high quality liquid assets in excess of 30 days cash outflows under a severe stress scenario, and a net stable funding requirement, under which the ratio of available amount of stable funding to required amount of stable funding is greater than one.

Under the initial definition of high quality liquid assets of the Basel Committee, covered bonds fell in the wider definition and were assigned a haircut of 20% for bonds rated AA and above and 40% for those rated A- (A minus) and above. The net stable funding definition assigned a required stable funding factor of 20% for covered bonds rated AA and above and a higher haircut for bonds rated A- (A minus) and above.

Such proposals received significant pushback from market participants and have led the Committee to partially modify its definition of liquid assets. Under the new framework, covered bonds fall within the Level 2 bucket, which can make up as much as 40% of total liquid assets, and will be subject to a haircut of 15% if rated AA- (double-A minus) and above. Level 2 assets will also include other government and public debt securities with 20% risk weight and high quality corporate debt rated at least AA- (double A minus). Requirements for covered bonds to qualify as Level 2 assets are:

• Eligible for central bank intraday or overnight liquidity

• Not issued by the bank for which the ratio is being calculated

• Minimum rating of double-A minus

• The bonds must trade in a large, deep and active markets and have not experienced a bid-ask spread of over 50bp in the last 10 years

• Maximum decline in price or increase in haircut over a 30 days period in the last ten years must not have exceeded 10% in a stressed environment

No changes have been made to the stable funding requirements. Although the Committee announced that revised criteria will be published later this year and postponed the introduction of a stable funding ratio until 2018, until which there will be an observation period that will leave enough time to address any issues with the new framework.

UCITS The minimum requirements for UCITS compliant covered bonds are set out in Article 22(4) of the UCITS Directive (Article 22(4) will become Article 52(4) in July 2011). To be eligible:

• Covered bonds must be issued by a credit institution

24



• The programme has to be governed by a specific legal framework

• The scope of eligible cover pool assets must be defined by law

• The cover pool must provide sufficient collateral to cover bondholder claims over the term of the covered bond

• Bondholders must have a priority claim on the cover pool in the event of default

Should the programme comply with the requirements set out in 22(4) then:

• Investment funds (UCITS) can invest up to 25% (instead of 5%) of their assets in the covered bonds of a single issuer

• Insurance companies can invest up to 40% (instead of 5%) of their assets in covered bonds of a single issuer

The role of Central Banks ECB treatment Covered bonds are considered eligible collateral to be used in repo financing operations with the ECB. Both marketable securities and select non-marketable ones (such as credit claims and non-marketable retail mortgage backed debt instruments) are accepted as collateral; marketable securities will have to satisfy the following criteria (amongst others):

• It must be a debt instrument with a fixed, unconditional principal amount (this requirement does not apply to ABS bonds, which have to satisfy a specific list of requirements)

• With a non-negative coupon (i.e. zero, fixed or floating)

• The debt instrument must be denominated in Euro and admitted to trading on a regulated exchange or a limited number of unregulated exchange (all EU)

• Issuers can be central banks, public sector entities, private entities or international institutions, but must be located in the EEA or in a non-EEA G10 country.

Once deemed eligible, the security is allocated to one of five liquidity categories (see Table 4) and assigned a haircut according to its maturity and type of coupon.

Table 4: Liquidity categories for marketable assets Category I Category II Category III Category IV Category V Central Government debt

Local and regional government debt

Traditional covered bank bonds (including multi-cedulas)

Credit institution debt (unsecured)

ABS

Debt issued by central banks

Jumbo covered bonds

Corporate and other debt

Agency debt instruments

Supranational debt instruments

Source: ECB

25



The haircuts to which different types of collateral are subject have been revised by the ECB in August 2010 and the new framework will become effective from 1st January 2011. The main changes affecting covered bonds are the increased haircuts for longer dated (>3yrs) non-jumbo covered bonds and the extension of the additional theoretical valuation 5% haircut to include all types of covered bonds.

Table 5: Old and new (changes in bold) valuation haircuts by category and maturity Category I Category II Category III Category IV Category V Maturity Fixed

coupon Zero coupon Fixed



coupon Zero coupon Fixed/Zero

coupon 0-1y 0.5 0.5 1 1 1.5 1.5 6.5 6.5 1-3y 1.5 1.5 2.5 2.5 3 3 8 / 8.5 8 3-5y 2.5 3 3.5 4 4.5 / 5.0 5 9.5 / 11.0 10 5-7y 3 3.5 4.5 5 5.5 / 6.5 6 10.5 / 12.5 11 7-10y 4 4.5 5.5 6.5 6.5 / 8.5 8 11.5 / 14.0 13 >10y 5.5 8.5 7.5 12 9 / 11.0 15 14 / 17.0 20

12 / 16.0

Source: ECB

BoE treatment The Bank of England has a similar facility available, the Discount Window Facility, under which eligible banks and building societies are required to pay cash ratio deposits (CRDs) to participate and can borrow gilts against a wide range of collateral in return for a fee that varies according to collateral type and borrowing size. The term of funding is generally 30 days but can be extended to 364 days for an additional 25bp fee.

Table 6: Eligible collateral levels and fees for drawing of gilts Level A Level B Level C Level D

% of £ eligible liabilities

High-quality securities eligible in

short-term repo OMOs and OSLF

Third-party securities trading in

liquid mkts

Third-party securities not

trading in liquid mkts

Own-name securitisations &

CBs

0-10% 50 75 125 200 10-20% 75 125 200 300 20-30% 100 175 275 400

>30% At the discretion of the Bank Source: Bank of England

Eligible collateral is defined as non-synthetic, non-wrapped securities denominated in a variety of currencies (GBP, EUR, USD, AUD, CAD, SEK, CHF and JPY), rated by at least two agencies. The list of securities include, amongst others, G-10 sovereigns rated double-A minus (or Moody's Aa3) or higher or guaranteed by a AAA-rated G-10 sovereign, UK & EEA CBs backed by either residential or commercial mortgages, or public sector debt, rated A3/A- or above with initial AAA ratings including own name covered bonds, most senior tranches of UK/US/EEA RMBS or ABS backed by credit cards, student loans, consumer loans, auto loans and certain equipment leases, rated A3/A- or above with initial AAA ratings, including own-name bonds (CMBS also accepted, but collateral has to be diversified and no construction loans are permitted).

Margin ratios are applied to eligible collateral, with additional haircuts for securities with no observable market price, own name ABS or covered bonds, downgraded ABS or covered bonds and non-sterling denominated securities.

26



Table 7: Margin ratios for extended collateral OMO eligible

& Sov. paper Govt.

agencies & US GSEs

Bank & BS guaranteed

debt

RMBS/CBs backed by resi

mtges

ABS of CCs & consumer

debt

ABS of corp. loans/ bonds

CMBS/CBs of real estate

Corp. bonds & CP issued by non-financials

Min rating Aa3/AA- Aaa/AAA Aaa/AAA not own name Corp: A3/A- Floating 1.06 1.09 1.09 1.2 1.25 1.33 1.43 1.54 Fixed, <3y 1.06 1.09 1.09 1.2 1.25 1.33 1.43 1.54 Fixed, 3-5y 1.07 1.1 1.1 1.23 1.28 1.37 1.47 1.59 Fixed, 5-10y 1.09 1.15 NA 1.28 1.33 1.43 1.54 1.67 Fixed, 10-30y 1.12 1.23 NA 1.37 1.43 1.54 1.67 1.82 Fixed, >30y 1.13 Available from the Bank on request Source: Bank of England

27



Rating Agencies We set out below an overview of the ratings approaches adopted by the three agencies with respect to covered bonds. All three agencies now link the rating of covered bonds to the rating of the issuing bank, providing further scope for uplift from the issuer rating based on both collateral and cover pool cashflow characteristics.

Fitch Ratings The following is a synopsis of the methodology used by Fitch Ratings to rate covered bonds. For a complete overview of the Agency’s approach, please see Fitch Rating’s ‘Covered Bond Rating Criteria', published 16th August 2010.

Fitch Ratings uses a three stage process in arriving at the ratings it gives to covered bonds. First, it combines the Issuer Default Rating (IDR) with the programme’s Discontinuity Factor (D-Factor) to calculate a maximum rating on a probability of default (PD) basis. Second, it tests the programme’s overcollateralisation, and finally calculates a recovery uplift.

The D-Factor is designed to capture the level of expected difficulty in transitioning from the issuer to the cover pool, after issuer default. The D-Factor is itself derived from four separate attributes, each given a contributory weighting: Asset Segregation (45%), Liquidity Gaps (35%), Alternative Management (15%) and Oversight (5%). Effectively, the IDR sets the floor rating for the covered bond, with the D-Factor setting the cap rating. The higher the D-Factor %, the lower the level of rating uplift that can be achieved from the IDR.

• Asset Segregation looks at the effective segregation of the cover pool from other creditors, the remoteness of over-collateralisation from creditor claims and also considers clawback, co-mingling and set-off risk.

• Liquidity Gaps analysis is two-fold, making a macro assessment of market liquidity and timing for potential portfolio sales, while also considering liquidity gaps at the programme level with the effectiveness of asset-liability mechanisms (i.e. pass-through structures, extendable bond maturities, liquidity guidelines, marching of assets/substitute assets).

• Alternative Management looks to the process governing the appointment of a substitute manager, along with the time taken to affect such a process. Furthermore, the Agency considers the availability of suitable replacements in a given market, along with the potential for conflicts of interest.

• Oversight considers the importance of covered bonds to a particular market, and the regulatory involvement in monitoring and supervising covered bonds.

All agencies now use the unsecured rating of the issuer as a rating‘s floor for its covered bonds

28



Table 8: Maximum achievable rating based on PD D-factor IDR 100% 70% 60% 50% 40% 30% 20% 14% 10% 5% 0% AAA AAA AAA AAA AAA AAA AAA AAA AAA AAA AAA AAA AA+ AA+ AA+ AAA AAA AAA AAA AAA AAA AAA AAA AAA AA AA AA+ AA+ AA+ AA+ AAA AAA AAA AAA AAA AAA AA- AA- AA AA AA+ AA+ AA+ AAA AAA AAA AAA AAA A+ A+ AA- AA- AA- AA AA AA+ AA+ AAA AAA AAA A A A+ AA- AA- AA AA AA+ AA+ AAA AAA AAA A- A- A A+ A+ AA- AA- AA AA+ AA+ AAA AAA BBB+ BBB+ A- A A+ A+ AA- AA AA+ AA+ AAA AAA BBB BBB BBB+ BBB+ A- A A+ AA- AA AA AA+ AAA BBB- BBB- BBB BBB BBB BBB BBB+ A A+ AA- AA AAA BB+ BB+ BBB- BBB- BBB- BBB BBB BBB+ A- A AA- AAA BB BB BB+ BB+ BBB- BBB- BBB BBB BBB+ A- AA- AAA BB- BB- BB BB BB+ BB+ BBB- BBB BBB BBB+ A AAA B+ B+ BB- BB BB BB+ BB+ BBB- BBB BBB A- AAA B B B+ BB- BB- BB BB+ BBB- BBB- BBB BBB+ AAA B- B- B B+ BB- BB- BB BB+ BBB- BBB- BBB+ AAA CCC/+ CCC/+ B- B B+ BB- BB- BB BB+ BBB- BBB AAA

Source: Fitch Ratings

Stage 2 involves assessing the highest level of stress that the over-collateralisation in the cover pool can withstand while still maintaining timely interest and principal payments in a wind-down scenario. The pool is assessed under economic downturn conditions, and compares the stressed cashflows from the cover pool to the payments required to be made on the covered bonds themselves. Over-collateralisation is key to the rating since it is the only form of credit-enhancement available to covered bond investors. Fitch gives credit for over-collateralisation in the following order: contractual commitments, if legally binding and enforceable; non-contractual public statements and covenants; and issuer’s internal guidelines. For issuers without any of the above:

• For institutions rated at least F2, the lowest level of over-collateralisation during the last twelve months

• For institutions rated F3 or below, the minimum level of over-collateralisation required by legislation

To achieve this analysis, the Agency runs scenario analysis from the highest achievable rating under Stage 1, down to the IDR. If over-collateralisation is insufficient to avoid a payment default on the covered bonds in the first scenario at the cap rating, the test is re-run again at each rating down to the IDR. The first rating where over-collateralisation is sufficient to support the payments required under the programme, is the rating under Stage 2.

Stage 3 is to recognise the positive impact of higher recoveries from the underlying collateral in the cover pool. Recoveries are calculated by comparing the NPV of cashflows from the cover pool against the NPV of privileged liabilities (the covered bonds themselves along with privileged swaps).

29



Table 9: Maximum uplift from Step 1 due to recovery considerations Recovery range (in %) Investment grade Non-IG

Outstanding 91-100 +2 +3 Superior 71-90 +1 +2

Good 51-70 +1 +1 Average 31-50 - -

Below average 11-30 -1 -1 Poor 0-10 -1/-2 -2/-3

Source: Fitch Ratings

Moody’s The following is a synopsis of the methodology used by Moody’s to rate covered bonds. For a complete overview of the Agency’s approach, please see ‘Moody’s Rating Approach to Covered Bonds’, published 4th March 2010.

Moody’s employs a joint default methodology, capturing both the credit strength of the issuing bank along with that of the cover pool. The rating of the issuing bank is the starting point of the Agency’s analysis, with the final rating of the covered bond programme determined by the quality of the collateral pool, the strength of the legal framework under which the programme is issued, and any other pertinent contractual commitments. Similar to its approach to other asset classes, the Agency uses an Expected Loss approach, combining the issuer PD based on the senior unsecured rating and the expected LGD to CB investors in the event of such a default.

Moody’s uses a four stage process for determining its covered bond ratings, looking first at the rating of the issuer, followed by consideration around the credit quality of the cover pool, modeling refinancing risks and finally computing market risks.

Similar to the approach of the other agencies, analysis starts at the rating of the issuer. Step 2 results in the analysis of the pool on either a loan-by-loan or stratified basis. A collateral score is given to act as a guide to the strength of the cover pool, considering the amount of collateral that can be refinanced at different rating levels and the amount of collateral written off on issuer default. The higher the collateral score, the higher the risk-free credit enhancement required by the programme (i.e. a lower collateral score implies higher collateral quality). Collateral scores can be reduced based on the (lower) correlation between the cover pool and the issuer itself.

Step 3 involves the modeling of refinancing risks, owing to the fact that natural amortisation of the pool is likely to be insufficient to meet the repayment profile of the programme. Moody’s looks to the securitisation market to calculate the discount that should be applied to the cover pool when calculating a stress refinancing margin. Finally, under Step 4, the agency looks to calculate market risks post-default of the issuer.

Moody’s also utilises a metric called the Timely Payment Indicator (or TPI), which is used in conjunction with the issuer’s rating to calculate the final covered bond programme rating. The TPI is designed to capture an assessment of the timeliness of payment of interest and principal following issuer default. TPI drivers are split over five categories, as follows:

• Legislation/contract considerations

• Hedging considerations

30



• Asset type considerations

• Nature of liabilities considerations

• Other considerations

Table 10: Maximum achievable rating based onTPI TPI Sponsor rating Very improbable Improbable Probable Probable-High High Very High A1 Aaa Aaa Aaa Aaa Aaa Aaa A2 Aa1 Aa1 Aaa Aaa Aaa Aaa A3 Aa2 Aa2 Aaa Aaa Aaa Aaa Baa1 Aa3 Aa3 Aa1 Aa1 Aaa Aaa Baa2 A1 A1 Aa2 Aa2 Aa1 Aaa Baa3 A3 A2 A1 Aa3 Aa2 Aa1 Ba1 Baa3 Baa2 Baa1 A3 A2 A1 Ba2 Baa3 Baa2 Baa1 A3 A2 A1 Ba3 Baa3 Baa2 Baa1 A3 A2 A1 B1 Ba3 Ba2 Ba1 Baa3 Baa2 Baa1 B2 Ba3 Ba2 Ba1 Baa3 Baa2 Baa1 B3 Ba3 Ba2 Ba1 Baa3 Baa2 Baa1

Source: Moody’s

Standard & Poor’s The following is a synopsis of the methodology used by Standard & Poor’s to rate covered bonds. For a complete overview of the Agency’s approach, please see ‘Revised Methodology And Assumptions For Assessing Asset-Liability Mismatch Risk In Covered Bonds’, published 16th December 2009.

S&P revised its covered bond rating methodology in 2009. The most significant development under the new approach has been the establishment of a direct link between the rating of the issuer and that of its covered bonds in situations where the programme has an asset-liability mismatch (ALMM). This brings S&P in line with the approach adopted by the other two agencies.

Figure 6: Revised ratings approach

ALMM Classification

Programme Categorisation

Maximum Potential CB rating

Cashflow & Market Value Analysis

CB Rating

Asset Risk CashflowRisk

Legal Risk Operational & Administrative

Risk

Counterparty Risk

ZeroLowModerateHigh

Category 1Category 2Category 3

Category 1 2 3Zero UnrestrictedLow 7 6 5Moderate 6 5 4High 5 4 3

Max. # notches

Determine target credit enhancement to achieve maximum potential ratings uplift

Compare target credit enhancement with available credit enhancement

1

2

3

4

5

ALMM Classification




CB Rating



Risk

Counterparty Risk

ZeroLowModerateHigh



Max. # notches



ALMM Classification




CB Rating



Risk

Counterparty Risk

ZeroLowModerateHigh



Max. # notches



1

2

3

4

5

Source: Standard and Poor’s

31



The revised framework introduces a five stage process to calculate a programme’s ultimate rating. First the Agency looks to calculate a programme’s maximum ALMM along with its timing, then under Stage 2 segregates programmes based on their issuance jurisdiction. The ALMM classification is determined as the maximum cumulative net ALMM as a percentage as a percentage of outstanding liabilities. To calculate the ALMM, S&P stresses the periodic cashflows from the collateral pool and compares these to the stressed outflows of the programme. The net difference (‘net stressed periodic cashflow’) is then scaled based on its timing. The ALMM percentage is then calculated as the maximum cumulative scaled ALMM amount, divided by the outstanding balance of programme liabilities. Based on the calculated percentage, the programme will sit in one of four available classification buckets.

Table 12: ALMM classifications and potential maximum uplift ALMM Classification ALMM Percentage Max. Potential Uplift

Zero N/A Unrestricted Low <15% 5-7 notches

Moderate 15-30% 4-6 notches High >30% 3-5 notches

Source: Standard & Poor’s

Rated covered bonds will therefore benefit from a minimum three notch uplift over the issuer’s own rating, and a maximum seven notch upgrade. For programmes without ALMM risk such as pass-through bonds, a covered bond’s rating is unconstrained by the issuer’s rating.

Step 2 allocates programmes into one of three categories based primarily on their jurisdiction of issuance.

Table 13: Programme categorisation Category 1 Category 2 Category 3

Range of funding options Can raise funds from both asset sales and borrowing. No restrictions on when or how funds can be raised

Can raise funds either through asset sales or borrowing. No restrictions on when or how funds can be raised

Access to funding is restricted so sale of assets is forced

Strength of funding sources

Long, well-established history for the CB market. Systematic importance is high. Broad range of banks able to lend, and adequate investor demand among a broad range of investors for the assets backing the programme

Limited history for the CB market. Not as systematic as Category 1. Broad range of banks able to lend, and adequate investor demand among a broad range of investors for the assets backing the programme

Newly established CB market. Systematic importance is low. Uncertain investor demand among a broad range of investors for the assets backing the programme

Jurisdictions Denmark; France (OFs); Germany; Spain, Sweden

Canada; Finland; France (structured CB); Ireland; Italy; Luxembourg; Netherlands; Norway; Portugal; UK

Greece; US

Maximum potential ratings uplift

5 to 7 4 to 6 3 to 5

Range of funding options Can raise funds from both asset sales and borrowing. No restrictions on when or how funds can be raised

Can raise funds either through asset sales or borrowing. No restrictions on when or how funds can be raised

Access to funding is restricted so sale of assets is forced


Table 11: Scaling factors Timing of mismatch

Scaling factor

0-1yr 100% 1-2y 95% 2-3y 90% 3-4y 85% 4-5y 80% 5-6y 75% 6-7y 70% 7-8y 65% 8-9y 60% 9-10y 55% >10y 50% Source: Standard & Poor’s

32



Step 3 sees the combination of ALMM Classification (Stage 1) and Programme Categorisation (Stage 2), giving the maximum potential covered bond rating.

Table 14: Maximum potential ratings uplift from the issuer’s ICR ALMM Classification Category 1 Category 2 Category 3

Zero Unrestricted Unrestricted Unrestricted Low 7 6 5

Moderate 6 5 4 High 5 4 3


Table 15: Maximum potential rating Issuer Rtg Category 1 Category 2 Category 3 AAA AAA AAA AAA AA+ AAA AAA AAA AA AAA AAA AAA AA- AAA AAA AAA A+ AAA AAA AA+ A AAA AA+ AA A- AA+ AA AA- BBB+ AA AA- A+ BBB AA- A+ A BBB- A+ A A- BB+ A A- BBB+ BBB- A- BBB+ BBB BB+ BBB+ BBB BBB- Source: Standard & Poor’s

Step 4 involves the modeling of revised collateral pool market values based on stressed asset spreads. These are used to calculate the expected proceeds to the programme if it borrowed or sold assets, allowing the Agency to calculate the required level of over-collateralisation required to support the maximum rating uplift. Asset market values are calculated using spread shocks, whereby the NPV of projected asset cashflows is based on stressed discount margins (taken from securitisation market pricing).

If the programme’s over-collateralisation reaches or exceeds the target level required under Step 4, the programme will be awarded the maximum potential rating. Should the actual level of over-collateralisation fall below this, however, the Agency will assign a commensurately lower rating.

S&P also assigns outlooks for CB ratings (Stable; Positive; Negative and Developing).

33



The following issuer profiles were published throughout Summer 2010. Data displayed was current as of date of publication shown below in Table 16.

Table 16: Covered Bond Issuer Profile publication schedule Part Publication Title Publication date I Scandinavia 8th July 2010 II France, Luxembourg & Netherlands 16th July 2010 III UK & Ireland 23rd July 2010 IV Austria, Germany & Switzerland 6th August 2010 V Greece, Italy & Portugal 20th August 2010 VI Spain 20th September 2010 VII Rest of the World 20th September 2010 Source: J.P.Morgan Covered Bond Research

Issu

er P

rofil

es

34



35



Aus

tria

n co

vere

d bo

nds

36



Austrian Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of Austrian covered bonds in Figure 7 and Figure 8 respectively.

Figure 7: CB Issuance, €bn

0

2,000

4,000

6,000

8,000

10,000

12,000

2003 2004 2005 2006 2007 2008 2009

Public sector Mortgage Ships

Source: ECBC. Latest data available displayed

Figure 8: CB outstanding, €bn

0

5,000

10,000

15,000

20,000

25,000

30,000

2003 2004 2005 2006 2007 2008 2009

Public sector Mortgage Ships


Legislative snapshot We set out below in Table 17 a snapshot of key covered bond attributes in Austria.

Table 17: Covered bond overview Attribute Commentary Legislative Framework Three different frameworks for covered bond issuance: Mortgage Banking Law of

1899 (Hypothekenbankgesetz); Law on Secured Bank Bonds (Gesetz betrffend fundierte Bankschuldverschreibungen (FBS) 1905) and Mortgage Bond Act (Pfandbriefgesetz as amended 2005)

Structure of Issuer Bonds are issued directly off the balance sheet of the lender. Assets are segregated on bankruptcy of the issuer

Supervision Financial Market Authority and Ministry of Finance, along with both a primary and secondary (back-up) trustee. For FBS, the collateral pool is monitored by a government commissioner

Cover assets Broadly, two types of collateral are allowed: mortgages (60% max LTV) and public sector assets. Only EEA, CH and domestic collateral allowed, but the preferential claim on pfandbrief holders must be recognised. If not, a cap of 10% is deployed. For public sector assets, the geographic scope is the same, but assets must have a risk-weight lower than 20%. FBS may also include bonds with “Mundelgelder” (“safe bond”) status Cash, credit institution debt, assets available for use at the ECB, public sector debt from acceptable jurisdictions (see above) are available for use as substitution assets, up to a cap of 15%.

Valuation Individual market values for pfandbrief and FBS ALM matching Eligible assets must be 102% of liabilities at all times on a nominal basis. Derivatives

can be used to help meet cashflow requirements. FBS set their own overcollateralisation requirements in their articles of association.

Over-collateralisation Required 2% Bankruptcy remoteness Issuer are required to have a register to record the cover assets Compliance with EU legislation

UCITS and CRD compliant

Source: ECBC, national legislation

37



Austrian macro background

Figure 9: Austrian real GDP growth, y-on-y, %

-6

-4

-2

0

2

4

6

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 10: Austrian unemployment level, %

0

1

2

3

4

5

6

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 11: Austrian CPI and base rate, %

-1

0

1

2

3

4

5

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 12: Austrian consumer confidence, balance of survey

-30

-20

-10

0

10

20

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Cons. Confidence

Source: Bloomberg

Figure 13: Austrian outstanding mortgage stock (€mm) and annual change, % (RHS)

010,00020,00030,00040,00050,00060,00070,00080,000

Dec-

02

Jun-

03

Dec-

03

Jun-

04

Dec-

04

Jun-

05

Dec-

05

Jun-

06

Dec-

06

Jun-

07

Dec-

07

Jun-

08

Dec-

08

Jun-

09

Dec-

09

0%

5%

10%

15%

20%

25%

30%Outstanding mortgage stock Annual change in mtge stock (RHS)

Source: ECB

Figure 14: Austrian average mortgage rate, %

01234567

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Av g mortgage rate

Source: ECB

38



Erste Bank Group The Erste Bank Group operates across eight markets in Central and Eastern Europe, with over 17 million customers, of which 95% are EU residents. The group’s strategy is to focus on providing retail and SME banking services to customers in new economies that are largely ignored by other banking groups by making targeted acquisitions of local banks. In fact, between 1997 and 2008, Erste acquired more than 10 banks in order to enter or increase its market share in its core markets.

The Group issues both mortgage and public-sector backed covered bonds.

Financial performance We set out below some of the key financial performance metrics:

Table 18: Erste Bank, select income statement items, €mm FY 2009 Net interest income 5,208 Provisions for loan losses 2,057 NII less provisions 3,152 Commissions & fee income 2,320 Other operating income 185 Non-interest expense 4,856 Operating profit (loss) 1,288 PBT 1,261 Taxes 285 Net profit (loss) 903 Source: Bloomberg

Table 19: Erste Bank, select balance sheet items, €mm FY 2009 Commercial Loans 70,296 Consumer Loans 51,702 Other Loans 7,136 Loans to public 124,179 Total Assets 201,710 Deposits 112,042 Short-term borrowings 27,683 Other short-term borrowing 9,488 Long-term borrowing 34,372 Equity 16,123 Source: Bloomberg

Table 20: Erste Bank, select financial metrics FY 2009 NIM 2.8 ROA 0.4 ROE 8.7 ROC 1.2 C:I 56.3 Core capital 10.8 Source: Bloomberg

Cover pool overview We set out below some of the key cover pool characteristics:

Table 21: Covered bond characteristics Public-sector

As at 31 Mar 2010 Mortgage

As at 31 Mar 2010 S/M/F S/M/F Covered Bond rating -/Aaa/- -/Aaa/- Issuer rating A/Aa3/A A/Aa3/A Cover pool size (€) 3,050,000,000 4,019,000,000 Number of loans 5,961 16,417 WA original LTV (in %) 48.2 Remaining tenor (yrs) 14.0 17.7 WA seasoning (yrs) 4.4 Fixed rate assets (in %) 14 Geographical split (in %) Austria – Vienna 19 38 Austria – Lower Austria 23 20 Austria – Tyrol 8 Austria – Other 58 24 Germany 10 Other Europe 4 Property type (in %) Private retail housing 34 Subsidised tenant associations

27

Commercial housing 23 Mixed office/housing/retail 8 Retail/wholesale 7 Agriculture and other 1 Source: Investor report

Table 22: Collateral pool LTMV breakdown Current LTMV ranges Mortgage

As at 31 Mar 2010 0-<=40% 35 >40%-<=50% 17 >50%-<=60% 48 Source: Investor report

39



Kommunalkredit Austria AG The bank was established in 1958 to provide low-interest, long-term funding to Austrian local authorities. This remains its core line of business as it focuses on municipal and infrastructure project finance, including project consulting, budget management and asset management consulting, together with other financing services.

The bank was nationalised in 2009, with the Austrian Government now owning 99.78% of the bank, and the remaining 0.22% owned by the Association of Austrian Municipalities. Public-sector backed covered bonds make up 29% of its current funding.


Table 23: Kommunalkredit AG, select income statement items, €mm FY 2009 Net interest income 5.9 Provisions for loan losses 0.7 NII less provisions 5.2 Commissions & fee income 3.4 Other operating income 1.1 Non-interest expense 4.8 PBT 3.2 Taxes 0.3 Net profit (loss) 2.9 Source: Kommunalkredit AG Annual Report 2009

Table 24: Kommunalkredit AG, select balance sheet items, €mm FY 2009 Consumer Loans 2,661 Total Assets 18,283 Deposits 1,029 Equity 421 Source: Kommunalkredit AG Annual Report 2009

Table 25: Kommunalkredit AG, select financial metrics FY 2009 Risk-weighted assets (€mm) 3,046 Core capital 14.3 Source: Kommunalkredit AG Annual Report 2009


Table 26: Covered bond characteristics As at 30 April

2010 S/M/F Covered Bond rating -/Aa1/- Issuer rating -/Baa1/A Geographical split (in %) Austria 68 Switzerland 11 Germany 8 Italy 5 Others 8 Asset type (in %) Loans 79 Bonds 21 Rating split (in %) Aaa 25 Aa 63 A 12 Source: Investor report

40



UniCredit Bank Austria Bank Austria is part of the UniCredit Group and one of the leading banks in the Central and Eastern Europe region.

Bank Austria is one of the leading banks in the country in offering services to the corporate world, with 88%/68%/45% of large/medium/small Austrian corporates and businesses amongst its customers.

Being part of the UniCredit Group, the bank also has access to the growing Central and Eastern European markets, where the Group has over 4,000 branches in 19 countries. Unicredit Bank Austria issues public-sector backed covered bonds.


Table 27: UniCredit Bank Austria, select income statement items, €mm FY 2009 Net interest income 7,058 Provisions for loan losses 2,267 NII less provisions 4,791 Commissions & fee income 2,245 Other operating income 378 Non-interest expense 4,206 Operating profit (loss) 1,384 PBT 1,335 Taxes 182 Net profit (loss) 1,102 Source: Bloomberg

Table 28: UniCredit Bank Austria, select balance sheet items, €mm FY 2009 Real Estate Loans 22,971 Loans to public 123,602 Total Assets 194,459 Deposits 97,316 Short-term borrowings 33,362 Other short-term borrowings 14,746 Long-term borrowing 30,789 Equity 13,850 Source: Bloomberg

Table 29: UniCredit Bank Austria, select financial metrics FY 2009 NIM 4.0 ROA 0.5 ROE .1 ROC 1.4 C:I 50.9 Core capital 8.7 Source: Bloomberg


Table 30: Covered bond characteristics As at 30 Apr

2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating A/A1/- Cover pool size (€) 2,797,000,000 Number of loans 3,163 Remaining tenor (yrs) 13 WA seasoning (yrs) 6 Fixed rate assets (in %) 33 Bullet Loans (in %) 44 Debtor distribution (in %) Municipalities 41 Guaranteed by Federal States 35 Guaranteed by Municipalities 14 Federal States 7 Guaranteed by the State 1 Other 2 Source: Investor report

41



Can

adia

n co

vere

d bo

nds

42



Canadian Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of Canadian covered bonds in Figure 15and Figure 16 respectively.

Figure 15: Mortgage CB Issuance, €mm

0

1,000

2,000

3,000

4,000

5,000

2003 2004 2005 2006 2007 2008 2009


Figure 16: Mortgage CB outstanding, €mm

01,0002,0003,0004,0005,0006,0007,0008,000

2003 2004 2005 2006 2007 2008 2009


Legislative snapshot We set out below in Table 31 a snapshot of key covered bond attributes in Canada.

Table 31: Covered bond overview Attribute Commentary Legislative Framework There is no covered bond framework in Canada and as a result covered bonds are

based on contractual agreements within general law. The government has however expressed the intention of introducing a special covered bond law.

Structure of Issuer The construct is similar to that used in the Netherlands and in the UK, whereby a securitisation technique is used to recreate a traditional covered bond structure using common and contract law. The assets are purchased by a bankruptcy-remote vehicle, the Guarantor, via an intercompany loan granted by the issuer; the Guarantor then provides a guarantee on the issuer's covered

Supervision Office of the Superintendent of Financial Institutions (OSFI) Cover assets Existing covered bond programmes are secured on residential mortgages and home

equity lines of credit (TD Bank programme only). RBC covered bonds are backed by uninsured mortgage with a maximum LTV of 80% (in Canada, mortgage insurance is required for loans with an LTV>80%)

Valuation Individual asset market value, estimated during underwriting process. When conducting the Asset Coverage Test (ACT) a different multiplier is used depending on whether each loan is performing or not

ALM matching Derivatives are allowed to hedge interest and exchange rate risk. The issuer is required to stress the cover pool when carrying out an ACT in order to ensure the cover pool is enough to cover all covered bonds claims. If this is breached, the issuer has to remedy the breach by the next calculation date. There is also a reserve fund that needs to be funded by the Guarantor upon downgrade of the issuer below a specified threshold.

Over-collateralisation It depends on the contractual agreement, but the current issuers have agreed on a maximum Asset Percentage of 97%, corresponding to an OC of 3.09%

Bankruptcy remoteness The assets are sold via a legal true sale to the Guarantor and therefore segregated from the issuer. Legal title to the assets remains with the issuer until the breach of a trigger


Non UCITS and Non CRD compliant


43



Canada macro background

Figure 17: Canada real GDP growth, y-on-y, %

-4

-2

0

2

4

6

8

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 18: Canada unemployment level and mortgage arrears (RHS), %

0

2

4

6

8

10

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

0.00

0.10

0.20

0.30

0.40

0.50Unemploy ment Mortgage arrears (RHS)

Source: Bloomberg, Canadian Banker Association

Figure 19: Canada CPI and base rate, %

-2-101234567

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 20: Canada consumer confidence index, #

0

20

40

60

80

100

120

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Cons. Confidence

Source: Bloomberg

Figure 21: Canada house price growth, %

-5

0

5

10

15

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

House price grow th

Source: Bloomberg

Figure 22: Canada housing permits issued and housing starts index (RHS), #

01,0002,0003,0004,0005,0006,0007,0008,000

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

050100150200250300350Housing permits Housing starts index (RHS)

Source: Bloomberg

44



Bank of Montreal BMO Financial Group serves more than 10 million personal, commercial, corporate and institutional customers in North America and internationally.

It is the fourth largest bank in Canada by deposits and its core lines of business are personal and commercial banking, wealth management (Private Client Group) and investment banking (BMO Capital Markets). The bank operates as Harris Bank in the USA.


Table 32: BMO, select income statement items, CADmm FY 2009 Net interest income 5,570 Provisions for loan losses 1,603 NII less provisions 3,967 Commissions & fee income 4,607 Other operating income 465 Non-interest expense 7,311 Operating profit (loss) 2,150 PBT 2,080 Taxes 217 Net profit (loss) 1,787 Source: Bloomberg

Table 33: BMO, select balance sheet items, CADmm FY 2009 Commercial loans 68,169 Consumer loans 93,922 Loans 160,189 Total Assets 388,458 Deposits 236,156 Short-term borrowings 58,376 Other short-term borrowings 23,578 Long-term borrowings 5,386 Equity 20,197 Source: Bloomberg

Table 34: BMO, select financial metrics FY 2009 NIM 1.8 ROA 0.4 ROE 9.9 ROC 2.3 C:I 66.1 Core capital 12.2 Source: Bloomberg


Table 35: Covered bond characteristics As at 31 Jul

2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating A+/Aa2/AA- Cover pool size (CAD) 4,439,766,316 Outstanding liabilities (in CAD) 3,577,070,000 Asset percentage (in %) 95.0 Number of loans 24,704 Average loan (in CAD) 179,719 WA seasoning (mths) 17.8 WA LTV (in %) 66.5 Highest regional exposure (in %) Ontario – 43.2 Fixed rate mortgages (in %) 59.2 Owner occupied properties (in %) 94.7 Bureau Score breakdown (in %) <500 or Unavailable 0.5 500-599 1.7 600-699 17.4 700-799 65.7 >=800 14.7 Current LTV breakdown (in %) <=50 16.1 50.01-55 5.3 55.01-60 7.6 60.01-65 9.4 65.01-70 9.3 70.01-75 11.3 75.01-80 33.5 >80 7.6 Source: Investor report

45



CIBC Canadian Imperial Bank of Commerce (CIBC) operates in two core areas of business: retail banking (CIBC Retail Markets) and wholesale banking (CIBC World Markets).

The retail bank offers a wide range of products to retail, institutional and wealth management clients in Canada and investment management services in Hong Kong, Singapore and the Caribbean.

Through its wholesale banking operations, CIBC provides investment banking services to government, institutional, corporate and retail clients in Canada and other key international markets


Table 36: CIBC, select income statement items, CADmm FY 2009 Net interest income 5,394 Provisions for loan losses 1,649 NII less provisions 3,745 Commissions & fee income 3,950 Other operating income 377 Non-interest expense 6,660 Operating profit (loss) 1,619 PBT 1,619 Taxes 424 Net profit (loss) 1,174 Source: Bloomberg

Table 37: CIBC, select balance sheet items, CADmm FY 2009 Commercial loans 37,343 Consumer loans 131,829 Loans 167,212 Total Assets 335,944 Deposits 223,117 Short-term borrowings 43,369 Other short-term borrowings 22,090 Long-term borrowings 5,757 Equity 14,449 Source: Bloomberg

Table 38: CIBC, select financial metrics FY 2009 NIM 1.9 ROA 0.3 ROE 9.1 ROC 1.8 C:I 66.8 Core capital 12.1 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating A+/Aa2/AA- Cover pool size (CAD) 10,462,095,012 Outstanding liabilities (in CAD) 9,208,585,000 Asset percentage (in %) 92.5 Number of loans 58,550 Average loan (in CAD) 154,158 WA seasoning (mths) 26.1 WA remaining term (mths) 33.9 WA current LTV (in %) 55.0 Highest regional exposure (in %) Ontario – 40.5 Fixed rate mortgages (in %) 0 Owner occupied properties (in %) 91.0 Bureau Score breakdown (in %) Unavailable 5.3 <500 0.0 500-599 1.2 600-699 20.0 700-799 63.5 >=800 10.0 LTV breakdown (in %) <=40 21.8 40.01-45 7.4 45.01-50 8.2 50.01-55 9.0 55.01-60 10.8 60.01-65 13.2 65.01-70 8.6 70.01-75 7.9 75.01-80 7.1 >80 6.1 Source: Investor report

46



Royal Bank of Canada RBC is Canada’s largest bank by both assets and market capitalisation, and is one of North Ameica’s leading financial services companies.

The bank, through its subsidiaries, offers a broad range of financial products and services, including personal and commercial banking, wealth management, insurance, corporate and investment banking and transaction processing services.

It operates mostly in Canada and the USA, but is also present in 51 other countries.


Table 40: RBC, select income statement items, CADmm FY 2009 Net interest income 11,506 Provisions for loan losses 3,413 NII less provisions 8,093 Commissions & fee income 9,307 Other operating income 1,005 Non-interest expense 14,558 Operating profit (loss) 6,526 PBT 5,526 Taxes 1,568 Net profit (loss) 3,858 Source: Bloomberg

Table 41: RBC, select balance sheet items, CADmm FY 2009 Real estate loans 122,130 Commercial loans 78,927 Consumer loans 205,224 Loans 280,963 Total Assets 654,989 Deposits 398,304 Short-term borrowings 76,509 Other short-term borrowings 40,031 Long-term borrowings 7,856 Equity 38,977 Source: Bloomberg

Table 42: RBC, select financial metrics FY 2009 NIM 2.3 ROA 0.5 ROE 12.0 ROC 3.5 C:I 58.6 Core capital 13.0 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating AA-/Aaa/AA Cover pool size (CAD) 16,716,500,518 Outstanding liabilities (in CAD) 7,835,073,000 Asset percentage (in %) 93.0 Number of loans 136,617 Average loan (in CAD) 122,360 WA seasoning (mths) 32.3 WA authorised LTV (in %) 68.2 WA drawn LTV (in %) 61.7 Highest regional exposure (in %) Ontario – 40.4 Fixed rate mortgages (in %) 66.3 Owner occupied properties (in %) 91.9 Bureau Score breakdown (in %) Unavailable 0.6 <500 1.0 500-599 2.6 600-699 14.8 700-799 55.2 >=800 25.7 Authorised LTV breakdown (in %) <=40 6.2 40.01-45 2.2 45.01-50 3.0 50.01-55 3.5 55.01-60 5.4 60.01-65 10.0 65.01-70 11.5 70.01-75 25.1 75.01-80 33.2 Drawn LTV breakdown (in %) <=40 11.5 40.01-45 4.2 45.01-50 5.1 50.01-55 6.4 55.01-60 8.2 60.01-65 12.7 65.01-70 15.7 70.01-75 16.6 75.01-80 19.7 Source: Investor report

47



Scotiabank Scotiabank is one of Canada’s largest banks, offering a wide range of products across 50 countries around the world. The Group has three core business lines: Canadian Banking, International Banking and Scotia Capital (wholesale banking arm of the Group).

The Canadian banking operations provide banking and investing services to just under 7.5mm customers; the core lines of business are retail and small business lending, wealth management and commercial banking services to medium and large businesses.

The international operations offer retail and commercial banking services across the Caribbean, Central and Latin America and Asia.


Table 44: Scotiabank, select income statement items, CADmm FY 2009 Net interest income 8,328 Provisions for loan losses 1,744 NII less provisions 6,584 Commissions & fee income 4,323 Other operating income 788 Non-interest expense 7,919 Operating profit (loss) 4,794 PBT 4,794 Taxes 1,133 Net profit (loss) 3,547 Source: Bloomberg

Table 45: Scotiabank, select balance sheet items, CADmm FY 2009 Commercial loans 106,520 Consumer loans 162,652 Loans 266,302 Total Assets 496,516 Deposits 350,419 Short-term borrowings 51,256 Other short-term borrowings 9,583 Long-term borrowings 6,444 Equity 25,326 Source: Bloomberg

Table 46: Scotiabank, select financial metrics FY 2009 NIM 1.9 ROA 0.7 ROE 16.9 ROC 4.6 C:I 54.8 Core capital 10.7 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating AA-/Aa1/AA- Cover pool size (CAD) 3,087,631,264 Outstanding liabilities (in CAD) 2,597,250,000 Asset percentage (in %) 95% Number of loans 21,735 Average loan (in CAD) 142,058 WA remaining term (mths) 29 WA current LTV (in %) 63.8 Highest regional exposure (in %) Ontario – 56.8 Fixed rate mortgages (in %) 100 Owner occupied properties (in %) 100 Bureau Score breakdown (in %) <500 1 500-599 2 600-699 15 700-799 58 >=800 25 LTV breakdown (in %) <=36 79.0 36-41.99 0.2 42-47.99 10.8 48-53.99 3.1 54-59.99 6.4 60-65.99 0.3 66-71.99 0.0 >=72 0.3 Source: Investor report

48



Toronto Dominion Bank TD Bank Financial Group offers a full range of financial products and services ranging from personal and commercial banking and wealth management to insurance and wholesale banking. The Group is structured along four key business lines: Canadian Residential & Business Banking including TD Canada Trust and TD Insurance; Wealth Management including TD Waterhouse and TD Ameritrade; Whole Banking and US Personal & Commercial Banking.

The bank operates mostly in its core markets of Canada and the USA and ranks amongst the top online financial services firms, with over 6 million online customers.


Table 48: TD Bank, select income statement items, CADmm FY 2009 Net interest income 11,326 Provisions for loan losses 2,480 NII less provisions 8,846 Commissions & fee income 5,683 Other operating income 603 Non-interest expense 11,825 Operating profit (loss) 3,555 PBT 3,472 Taxes 241 Net profit (loss) 3,120 Source: Bloomberg

Table 49: TD Bank, select balance sheet items, CADmm FY 2009 Commercial loans 87,322 Consumer loans 168,174 Loans 253,128 Total Assets 557,219 Deposits 391,034 Short-term borrowings 34,113 Other short-term borrowings 29,813 Long-term borrowings 13,278 Equity 40,829 Source: Bloomberg

Table 50: TD Bank, select financial metrics FY 2009 NIM 2.5 ROA 0.5 ROE 9.1 ROC 3.7 C:I 66.2 Core capital 11.3 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating -/Aaa/- Cover pool size (CAD) 9,867,936,709 Outstanding liabilities (in CAD) 2,079,000,000 Asset percentage (in %) 95.0 Number of loans 79,241 Average loan (in CAD) 124,531 WA seasoning (mths) 50.4 WA authorised LTV (in %) 68.0 WA drawn LTV (in %) 54.7 Highest regional exposure (in %) Ontario – 54.7 Fixed rate mortgages (in %) 13.2 Owner occupied properties (in %) 100.0 Bureau Score breakdown (in %) Unavailable 0.1 <500 0.0 500-599 0.4 600-699 8.1 700-799 64.3 >=800 27.1 Authorised LTV breakdown (in %) <=40 14.5 40.01-45 3.4 45.01-50 8.1 50.01-55 3.2 55.01-60 4.5 60.01-65 8.6 65.01-70 5.8 70.01-75 30.3 75.01-80 21.7 Drawn LTV breakdown (in %) <=40 51.0 40.01-45 5.2 45.01-50 5.6 50.01-55 5.0 55.01-60 4.9 60.01-65 6.0 65.01-70 5.8 70.01-75 8.4 75.01-80 6.7 >80 1.5 Source: Investor report

49



Dan

ish

cove

red

bond

s

50



Danish Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of Danish covered bonds in Figure 23 and Figure 24 respectively.

Figure 23: CB issuance, €bn

020,00040,00060,00080,000

100,000120,000140,000160,000

2003 2004 2005 2006 2007 2008 2009

ShipsPublic sectorMortgage



050,000

100,000150,000200,000250,000300,000350,000

2003 2004 2005 2006 2007 2008 2009

ShipsPublic sectorMortgage


Legislative snapshot We set out below in Table 52 a snapshot of key covered bond attributes in Denmark.

Table 52: Covered bond overview Attribute Commentary Legislative Framework Danish Mortgage Credit Loans & Mortgage Credit Bonds etc Act. Executive Order No.

718 of 21 June 2007 on the Issue of Bonds, the Balance Principle and Risk Management; Bill No. 577 of 6 June 2007 amending the Financial Business Act 454 of 10 June 2003.

Structure of Issuer Both specialised mortgage credit institutions (who have restrictions on the scope of their banking activities) and also licensed credit institutions (essentially commercial banks).

Type of bonds Two current types, primarily differentiated by the type of issuer, and the type of substitution assets allowed in the cover pool. Specialist mortgage credit institutions are the only type of issuer of SDROs (Saerligt Daekkede RealkreditObligationer), while licensed credit institutions, specialist mortgage credit institutions and shipping finance institutions (Danmarks Skibskredit) can issue SDOs (Saeligt Deakkede Obligationer). Legacy issues are ROs (RealkreditObligationer), and do not meet the covered bond definitions under the CRD (grandfathered risk-weights for pre-2008 issuance).

Supervision Danish FSA Cover assets Separate ‘capital centres’ or cover pools maintained for different types of issues or

assets. Public assets, ship loans (max LTV 70%), bank debt (SDO’s only), mortgages (max LTV 80% for residential, 70% for agricultural and 60% for commercial properties). For public sector assets, there is a cap of 20% of the pool for 20% risk-weighted exposures. Substitute collateral can constitute a maximum of 15% of the pool. Derivatives are also allowed into the pool.

Valuation Individual market value. ALM matching NPV of cover pool has to be above liabilities’ value at all times; cashflows from pool

and derivatives should be enough to cover payments on liabilities. Issuers have to adhere to one of the general and the specific balance principle (imposes limits on interest rate and currency risk, while also imposing matched funding requirements).

Over-collateralisation No minimum requirement for commercial banks but specialist mortgage banks have to maintain 8% of RWA.

Bankruptcy remoteness Segregated assets in cover register. No automatic acceleration in case of bankruptcy. Derivatives counterparties rank pari passu with bondholders.


UCITS and CRD compliant.


51



Junior covered bonds The Danish covered bond legislation allows, under Section 33e of the Danish Mortgage-Credit Loans and Mortgage-Credit Bonds Act, the issuance of the Junior Covered Bonds (JCBs). These are issued to fund assets eligible as supplementary security for covered bonds (with the addition of government securities as eligible extra assets) in case the value of the assets backing the SDO falls below the value of the issued bonds (this could happen if, for example, house prices fall or bond values rise).

JCBs are backed by the same collateral as covered bonds but only have a secondary preferential claim towards the assets in the capital centre, behind covered bond holders and derivative counterparties. In addition, if the cover pool is insufficient to satisfy all the claims in the capital centre, JCBs have a residual claim towards the assets of the issuer and in this case they would rank pari passu with unsecured claims, including covered bonds. To date, there has been only one issue of junior covered bonds (issued by Nykredit, rated Aa3 by Moody’s and with a risk weight of 20%).

As for “traditional” covered bonds, issuers are fully liable for the outstanding JCBs and can defer payments to these bonds only if payments would breach the tests imposed by the balance principle, if such tests have already been breached or in case of an issuer insolvency.

Figure 25: Junior Covered Bonds explained

SchematicSchematic

Eligible Assets

Mortgage loans

Loans to public authorities

Claims with banks

Covered Bonds

Primary claim (alongside that of derivative financial instruments) in the event of insolvency

Assets Liabilities

Eligible Assets

Government securities

Junior Covered Bonds

Secondary claim against all remaining assets in the capital centre in the event of insolvency

Capital Centre XYZ


Mandatory 8% of RWA for specialist mortgage banks

Voluntary basis for commercial banks

Equity

Source: J.P. Morgan Covered Bonds Research

52



Danish macro background

Figure 26: Danish real GDP growth, y-on-y %

-8-6-4-20246

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 27: Danish unemployment level, %

01234567

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 28: Danish CPI and base rate, %

0

1

2

3

4

5

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 29: Danish consumer confidence, index

-15

-10

-5

0

5

10

15

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Cons. Confidence

Source: Bloomberg

Figure 30: Danish nominal house price growth, y-on-y %

-20%

-10%

0%

10%

20%

30%

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

OECD HP nominal grow th

Source: OECD

Figure 31: Danish housing starts, number

0

5000

10000

15000

20000

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Housing starts

Source: Statistics Denmark

53



BRF Kredit AS BRF Kredit (BRF) is a specialist mortgage lender, accounting for around 10% of the Danish mortgage market. The loan book is made up of loans backed by: 44% owner-occupied properties, 20% private rental housing, 16% subsidised housing and 16% commercial properties. All properties are located in Denmark. BRF Kredit is owned by an independent business foundation, BRFfonden.

The lender finances its lending activity using covered bonds and mortgage bonds, depending on the type of collateral used. BRF adheres to the general balance principle, with bonds being full recourse obligations on BRF Kredit. Mortgage bonds are supported by a cover pool of assets, either from a specific capital centre or by the remaining assets of BRF Kredit (General Capital Centre).


Table 53: BRF Kredit, select income statement items, DKKmm FY 2009 Net interest income 1,747 Provisions for loan losses 2,125 NII less provisions -378 Other operating income 8 Non-interest expense 1,098 Operating profit (loss) -852 PBT -858 Taxes -237 Net profit (loss) -621 Source: Bloomberg

Table 54: BRF Kredit, select balance sheet items, DKKmm FY 2009 Loans to public 221,025 Total Assets 246,829 Deposits 3,937 Short-term borrowings 25,075 Long-term borrowings 202,557 Equity 9,730 Source: Bloomberg

Table 55: BRF Kredit, select financial metrics FY 2009 NIM 0.7 ROA -0.3 ROE -6.2 ROC -0.3 C:I 42.6 Core capital 13.3 Source: Bloomberg


Table 56: Covered bond characteristics As at 31 March

2010 S/M/F Covered Bond rating: Capital Centre E (SDO) -/Aa1/- Covered Bond rating: Capital Centre B (RO) -/Aa3/- Covered Bond rating: General Capital Centre (RO) -/Aa3/- Issuer rating -/Baa1/- Total Cover Pool Balance: 216,000,000,000 WA Loan Balance: 1,589,000 No. of Loans: 135,928 WA LTV (in %): 67 Interest only mortgages (in %): 51 Fixed rate mortgages (in %) 24 Capped mortgages (in %): 11 Private housing (in %): 47 Copenhagen concentration (in %): 49 Source: Investor report

Table 57: Collateral pool LTV breakdown Current LTV ranges As at 31 March

2010 0-<=40% 61 >40%-<=60% 20 >60%-<=80% 13 >80%-<=100% 4 >100% 2 Source: Investor report. All loans

54



Danske Bank AS Danske Bank Group (Danske) is the largest financial group in Denmark and one of the largest in the Nordic region. The Group focuses on retail banking, with a product range which includes banking, mortgage lending, insurance, leasing, real-estate brokerage and asset management. In Sweden and Norway, the Group has mid-single digit market shares through its acquisitions of Ostgota Enskilda Bank & Provinsbankerne and Fokus Bank respectively, while also owning Finland's third largest bank (Sampo Bank). Danske is also currently present in Ireland, Luxembourg, Germany, Poland and the Baltics. Danske issues covered bonds backed by two separate cover pools: Pool I (International) comprises 47% Swedish and 53% Norwegian mortgages, while Pool D (Domestic) is made up of 100% Danish loans.


Table 58: Danske Bank, select income statement items, DKKmm FY 2009 Net interest income 47,542 Provisions for loan losses 25,677 NII less provisions 21,865 Other operating income -8,851 Non-interest expense 33,117 Operating profit (loss) 4,462 PBT 4,755 Taxes 3,042 Net profit (loss) 1,727 Source: Bloomberg

Table 59: Danske Bank, select balance sheet items, DKKmm FY 2009 Loans to public 1,815,615 Total Assets 3,098,477 Deposits 859,580 Short-term borrowings 311,169 Long-term borrowings 1,111,658 Equity 100,659 Source: Bloomberg

Table 60: Danske Bank, select financial metrics FY 2009 NIM 1.6 ROA 0.1 ROE 1.7 ROC 0.1 C:I 49.8 Core capital 14.1 Source: Bloomberg

Cover pool overview We set out below key cover pool characteristics:

Table 61: Covered bond characteristics, Pool I (International) As at 30 April

2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating A/Aa3/A+ Total Cover Pool Balance: 79,763,052,664 Avg Loan Balance: 795,443 No. of Loans: 100,275 WA LTV (in %): 61 OC at cut-off (in %): 19.4 Substitution collateral 2,438,977,500 Seasoning (in months): 32 Remaining term (in months): 435 Housing cooperatives (in %): 25 Country concentration (in %): 47 Swe, 53 Nor Source: Investor report

Table 62: Collateral pool LTV breakdown, Pool I (International) Current Indexed LTV ranges As at 30 April

2010 0-<=40% 15 >40%-<=50% 15 >50%-<=60% 18 >60%-<=70% 19 >70%-<=80% 18 >80% 15 Source: Investor report

Table 63: Covered bond characteristics, Pool D (domestic) As at 30 April

2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating A/Aa3/A+ Total Cover Pool Balance: 31,936,752,259 Avg Loan Balance: 610,214 No. of Loans: 52,337 WA LTV (in %): 58 OC at cut-off (in %): 16 Substitution collateral 515,583,500 Seasoning (in months): 40 Remaining term (in months): 318 Copenhagen concentration (in %): 36 Source: Investor report

Table 64: Collateral pool LTV breakdown, Pool D (domestic) Current Indexed LTV ranges As at 30 April


55



DLR Kredit AS

Dansk Landbrugs Realkreditfond (DLR) was founded in 1960 to target farmers' needs for long term capital. DLR was allowed to grant mortgages with LTVs ranging between 45-70% but gave up this exclusive right in 1999, before being transferred to the Mortgage Credit Act in 2000. In 2001, it acquired its current form as a company limited by shares.

The loan portfolio is heavily skewed towards agricultural and commercial properties, with fixed rate loans and short-interest period loans accounting for 24% and 76% of the total portfolio respectively. ARM loans are by far the dominant loan type, with a 60% share of the loan book. Interest only loans make up 52% of the pool, but are mostly concentrated in the private rental and cooperative housing sections of the loan portfolio.


Table 65: DLR Kredit, select income statement items, DKKmm FY 2009 Net interest income 1,047 Provisions for loan losses 159 NII less provisions 889 Commissions and fee income 76 Other operating income 18 Non-interest expense 203 PBT 450 Taxes 113 Net profit (loss) 337 Source: DLR Kredit Annual Report 2009

Table 66: DLR Kredit, select balance sheet items, DKKmm FY 2009 Total Assets 149,330 Equity 6,534 Source: DLR Kredit Annual Report 2009

Table 67: DLR Kredit, select financial metrics FY 2009 ROA 0.2 ROE 5.5 Core capital 11.6 Source: DLR Kredit Annual Report 2009



2010 S/M/F Covered Bond rating (SDO, Capital Centre B) -/Aa1/- Covered Bond rating (RO, General Capital Centre) -/Aa1/- Issuer rating -/A3/- Total Cover Pool Balance: 131,526,200,000 Agricultural loans (in %): 64 Office and business property loans (in %): 16 Private rental property loans (in %): 13 Residential loans (in %): 6 Fixed rate loans (in %): 24 Interest only loans (in %): 52 Source: Quarterly report

56



Nordea Kredit Realkredit AS Nordea Kredit grants mortgage lending secured by residential, commercial, agricultural and industrial properties in Denmark. The Nordea Group is a well established financial group catering to the Nordic and Baltic states, where it is consistently one of the largest by market share, with a small but growing presence in new European markets. No geographical market accounts for more than a quarter of income, out of a customer base of around 10mm households and corporates. As of May 2010, one of the largest shareholders is the Swedish State, with a stake of around 20%.

There are two covered bond Capital Centres: mortgage bonds (ROs) are issued out of Capital Centre I and constitute 43% of the loan pool; only one ISIN remains open for issuance out of CC I. Covered bonds (SDROs) are issued out of Capital Centre II and new issues are almost exclusively out of this CC.


Table 69: Nordea, select income statement items, DKKmm FY 2009 Net interest income 39,323 Provisions for loan losses 11,065 NII less provisions 28,258 Commissions and fee income 18,377 Other operating income 782 Non-interest expense 39,367 Operating profit (loss) 22,539 PBT 22,897 Taxes 5,637 Net profit (loss) 17,230 Source: Bloomberg

Table 70: Nordea, select balance sheet items, DKKmm FY 2009 Loans to public 2,101,200 Total Assets 3,776,300 Deposits 1,142,700 Short-term borrowings 388,313 Other short-term borrowings 4,204 Long-term borrowings 1,024,600 Equity 166,813 Source: Bloomberg

Table 71: Nordea, select financial metrics FY 2009 NIM 1.4 ROA 0.5 ROE 11.6 ROC 1.2 C:I 50.0 Core capital 10.2 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/- Issuer rating AA-/Aa2/AA- Total Cover Pool Balance: 302,700,000,000 Capital Centre 1 (in %): 43 Capital Centre 2 (in %): 57 WA LTV (in %): 66 Fixed rate mortgages (in %) 25 ARM mortgages (in %): 44 Interest only mortgages (in %): 54 Source: Investor report

57



Nykredit Realkredit AS Nykredit is the third largest financial institution in Denmark, with a share of 41% of the mortgage lending market and 5% of the commercial banking market. The group also offers insurance, pension and estate agency services and products. Nykredit Realkredit is wholly owned by Nykredit Holding AS (majority owned by the Nykredit Foundation (87.46%)).

In 2003 Nykredit acquired Totalkredit, which currently operates as a wholly owned subsidiary. Since 2006 the two have been jointly funded, with Totalkredit covered bonds originally issued out of Capital Centre D. Since 2007, these are issued out of Capital Centre E with the pre-existing series being grandfathered in accordance with the CRD.


Table 73: Nykredit, select income statement items, DKKmm FY 2009 Net interest income 11,230 Provisions for loan losses 7,919 NII less provisions 3,311 Commissions and fee income 2,026 Other operating income 1,686 Non-interest expense 7,584 PBT 179 Taxes 50 Net profit (loss) 129 Source: Nykredit Realkredit Group Annual Report 2009

Table 74: Nykredit, select balance sheet items, DKKmm FY 2009 Consumer loans 992,992 Loans to public 1,055,003 Total Assets 1,247,263 Deposits 64,483 Short-term borrowings 119,313 Other short-term borrowings 1,008 Long-term borrowings 889,899 Equity 51,241 Source: Nykredit Realkredit Group Annual Report 2009

Table 75: Nykredit, select financial metrics FY 2009 ROA 0.0 ROE 0.3 Core capital 16.7 Source: Nykredit Realkredit Group Annual Report 2009


Table 76: Covered bond characteristics, Pool D (RO) As at 31 March

2010 S/M/F Covered Bond rating AAA/Aaa/- Issuer rating A+/A1/- Total Cover Pool Balance: 381,498,000,000 Avg Loan Balance: 1,393,946 No. of Loans: 273,682 WA LTV (in %): 55 Fixed rate loans (in %): 41 Interest only (in %): 49 Source: Investor report

Table 77: Collateral pool LTV breakdown, Pool D (RO) Current Indexed LTV ranges As at 31 March


Table 78: Covered bond characteristics, Pool E (SDO) As at 31 March

2010 S/M/F Covered Bond rating AAA/Aaa/- Issuer rating A+/A1/- Total Cover Pool Balance: 466,032,000,000 Avg Loan Balance: 1,465,113 No. of Loans: 318,086 WA LTV (in %): 64 Fixed rate loans (in %): 11 Interest only (in %): 64 Source: Investor report

Table 79: Collateral pool LTV breakdown, Pool E (SDO) Current Indexed LTV ranges As at 31 March


58



Realkredit Danmark AS Realkredit Danmark (RD) specialises in mortgage lending secured by residential, commercial, agricultural and industrial properties. RD dates back to 1851 but it became a wholly owned subsidiary of the Danske Bank Group in 2001.

RD’s main market is Denmark, where it is the second largest specialist mortgage lender, but also offers loans secured by properties in the UK, Sweden, Faroe Islands and Greenland.


Table 80: Realkredit Danmark, select income statement items, DKKmm FY 2009 Net interest income 5,732 Provisions for loan losses 1,265 NII less provisions 4,467 Commissions and fee income 516 Other operating income 7 Non-interest expense 1,012 PBT 3,333 Taxes 841 Net profit (loss) 2,492 Source: Realkredit Danmark Annual Report 2009

Table 81: Realkredit Danmark, select balance sheet items, DKKmm FY 2009 Mortgage loans 691,301 Total Assets 746,170 Equity 41,020 Source: Realkredit Danmark Annual Report 2009

Table 82: Realkredit Danmark, select financial metrics FY 2009 ROA 0.3 ROE 6.5 C:I 17.2 Core Capital 44.2 Source: Realkredit Danmark Annual Report 2009


Table 83: Covered bond characteristics As at May 2010 S/M/F Covered Bond rating AAA/Aaa/- Issuer rating AA-/Aa3/- Total Cover Pool Balance: 699,000,000,000 WA LTV (in %): 69 LTV>80% (in %): 6 Loans to homeowners (in %): 59 Commercial loans (in %): 15 Loans for residential rental (in %): 19 Agricultural loans (in %): 7 Source: Investor report

Table 84: Collateral pool LTV breakdown Current LTV ranges As at May 2010 0-<=40% 63 >40%-<=60% 20 >60%-<=80% 12 >80% 6 Source: Investor report

59



Dut

ch c

over

ed b

onds

60



Dutch Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of Dutch covered bonds in Figure 32 and Figure 33 respectively.


0

2,000

4,000

6,000

8,000

10,000

2003 2004 2005 2006 2007 2008 2009

Mortgage



0

5,000

10,000

15,000

20,000

25,000

30,000

2003 2004 2005 2006 2007 2008 2009

Mortgage


Legislative snapshot We set out below in Table 85 a snapshot of key covered bond attributes in The Netherlands.

Table 85: Covered bond overview Attribute Commentary Legislative Framework Decree of 3 June 2008 and Financial Services Act. The contractual terms are defined

by the Dutch law and allow four types of bonds: general law based CB (those structured through contract law, prior to the adoption of CB legislation), covered bonds, CRD and UCITS compliant registered CB and non-CRD-compliant registered CB (both issued under the legislative framework)

Structure of Issuer Bonds are issued by the credit institution itself, using a similar guarantor structure (Covered Bond Company or CBC0 to that used in the UK, French non-legislative covered bonds etc

Supervision Netherlands Authority for Financial Markets (AFM) and Dutch Central Bank (DNB) Cover assets Only Dutch and EEA mortgages allowed in the cover pool. Max size typically set at

€1.5mm and for non-NHG loans max 125% LTFV. Both NHG ad non-NHG loans accepted. Loan with LTFV between 125% and 130% must not exceed 5% of total. Substitute collateral typically must not exceed 10%, with eligibility criteria self-imposed by the issuers.

Valuation Individual market values ALM matching Nominal value of assets has to be greater than principal amount of o/s bonds.

Derivatives can be used. Pre-maturity tests are designed to ensure the borrower can provide sufficient liquidity in case of downgrade (i.e. pre-defined period prior to scheduled bond redemption, if a borrower's short-term rating is below a prescribed threshold, the borrower must fund a cash collateral account to ensure redemption). Amortisation tests are designed to ensure the issuer has the capacity to meet its obligations following a borrower EOD. Asset Coverage tests are designed to ensure that pool collateral is sufficient to meet future interest and principal cashflows on the outstanding covered bonds

Over-collateralisation Requirements prescribed by the issuers Bankruptcy remoteness Similar to the UK, in case of insolvency of the originator, the issuer exercises the

financial guarantee over the pledged assets; if the issuer is insolvent, assets are transferred to an SPE


UCITS and CRD compliant for registered covered bonds (see above)


61



Dutch macro background

Figure 34: Dutch real GDP growth, y-on-y, %

-6

-4

-2

0

2

4

6

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 35: Dutch unemployment level, %

012345678

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Unemploy ment

Source: Bloomberg

Figure 36: Dutch CPI and base rate, %

0

1

2

3

4

5

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 37: Dutch consumer confidence, balance of survey

-50-40-30-20-10

010203040

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Cons. Confidence

Source: Bloomberg

Figure 38: Dutch house price growth, y-on-y, %

-10%-5%0%5%

10%15%20%25%

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

House price grow th

Source: Kadaster

Figure 39: Dutch annual dwelling transactions, #

0

50000

100000

150000

200000

250000

Dec-

00

Dec-

01

Dec-

02

Dec-

03

Dec-

04

Dec-

05

Dec-

06

Dec-

07

Dec-

08

Dec-

09

Annual ow ner occ.dw elling transactions

Source: CBS Netherlands

62



ABN Amro Bank NV On 1st July 2010, the legal merger between ABN Amro Bank NV and Fortis Bank (Nederland) NV was completed, creating a combined entity called ABN Amro Bank NV. This institution is wholly owned by the Dutch government, and will eventually be returned to the private sector.

The ABN Amro Group offers retail, private and merchant and commercial banking services to just under 7mm retail clients and 400,000 corporate clients globally.

The ABN covered bond programme is backed by Dutch residential mortgages, and is registered with the Dutch central bank.

Table 86: ABN Amro Bank NV, select income statement items, €mm FY 2009 Net interest income 2,979 Commissions & fee income 1,198 Other operating income 215 Non-interest expense 4,194 Operating profit (loss) 1,105 PBT -67 Taxes 50 Net profit (loss) -117 Source: ABN Amro Bank NV Annual Report 2009, unaudited pro forma

Table 87: ABN Amro Bank NV, select balance sheet items, €mm FY 2009 Loans to public 166,603 Total Assets 202,084 Short-term borrowings 143,782 Other short-term borrowing 4,577 Long-term borrowing 23,451 Equity 4,278 Source: ABN Amro Bank NV Annual Report 2009, unaudited pro forma



2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating (ABN Amro Bank NV) A/Aa3/A+ Cover pool size (€) 21,699,007,900 Number of loans 115,042 Avg loan (€) 105,086 WA original LTFV (in %) 89.6 WA indexed LTFV (in %) 83.8 WA original LTV (in %) 76.4 WA indexed LTV (in %) 71.2 WA seasoning (yrs) 5.3 Highest regional concentration (in %) Zuid-Holland 22 Source: Investor report

63



Achmea Hypotheekbank NV Achmea Hypotheekbank NV was formed in 1995 and provides mortgage loans to private individuals in the Netherlands under the Centraal Beheer Achmea, FBTO, Avéro Achmea and Woonfonds Hypotheken brands. Achmea mortgage bank is wholly owned by Achmea Holding, which in turn is a wholly owned subsidiary of the insurance group Eureko BV.

While part of the lending is financed with deposits, Achmea is rather active on the wholesale markets: in addition to the €10bn covered bond programme started in 2007, the bank has had an established RMBS platform since 2000 and a €10bn EMTN programme launched in 1996.

The Achmea covered bond programme is backed by Dutch residential mortgages, and is not currently registered with the Dutch central bank.


Table 89: Achmea Hypotheekbank, select income statement items, €mm FY 2009 Net interest income 126 Commissions & fee income 11 Operating profit (loss) 67 PBT 67 Taxes 16 Net profit (loss) 50 Source: Achmea Hypotheekbank Annual Report 2009

Table 90: Achmea Hypotheekbank, select balance sheet items, €mm FY 2009 Loans to public 14,387 Total Assets 15,999 Deposits 250 Short-term borrowings 791 Long-term borrowing 239 Equity 484 Source: Achmea Hypotheekbank Annual Report 2009

Table 91: Achmea Hypotheekbank, select financial metrics FY 2009 ROE 11 Core capital 10.4 Source: Achmea Hypotheekbank Annual Report 2009



2010 S/M/F Covered Bond rating -/Aa2/AAA Issuer rating (Achmea Hypotheekbank) A-/Aaa/A- Cover pool size (€) 5,300,000,000 Number of loans 63,567 Avg loan (€) 83,377 WA original LTMV (in %) 84.3 WA indexed LTMV (in %) 79.4 Interest only share (in %) 57.0 WA seasoning (yrs) 5.3 Regional distribution (in %) Zuid Holland 17.9 Noord Brabant 16.3 Noord Holland 15.7 Gelderland 14.6 Source: Fitch Ratings

64



ING Bank NV ING Bank NV is the Dutch subsidiary of the ING Group, a global financial institution based in the Netherlands. ING offers a wide range of financial products, including banking, insurance, investments and retirement services.

At the end of 2009, ING announced that it will proceed with a gradual separation of its banking and insurance businesses, to be completed by the end of 2013, in order to provide more efficient and agile operations.

The ING covered bond programme is backed by Dutch residential mortgages, and is registered with the Dutch central bank.


Table 93: ING Bank NV, select income statement items, €mm FY 2009 Net interest income 11,020 Provisions for loan losses 2,973 NII less provisions 8,047 Commissions & fee income 3,553 Other operating income 456 Non-interest expense 10,571 Operating profit (loss) 1,384 PBT 500 Taxes -43 Net profit (loss) 684 Source: Bloomberg

Table 94: ING Bank NV, select balance sheet items, €mm FY 2009 Real Estate Loans 324,340 Commercial Loans 536,167 Consumer Loans 19,960 Loans to public 551,774 Total Assets 882,119 Deposits 477,602 Short-term borrowings 148,909 Other short-term borrowing 130,264 Long-term borrowing 77,350 Equity 31,217 Source: Bloomberg

Table 95: ING Bank NV, select financial metrics FY 2009 NIM 1.2 ROA 0.1 ROE 2.6 ROC 0.2 C:I 69.0 Core capital 10.2 Source: Bloomberg


Table 96: Covered bond characteristics As at 20 June

2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating A+/Aa3/A+ Cover pool size (€) 19,346,600,194 Number of loans parts 226,896 Avg loan parts (€) 82,497 WA original LTMV (in %) 60.0 Remaining tenor (yrs) 23.4 WA seasoning (yrs) 6.3 Interest only (in %) 71.3 WA avg Debt to Income 3.9 WA avg Payment to Income (in %) 18 Highest regional concentration (in %) Zuid-Holland 22 Source: Investor report

Table 97: Collateral pool LTMV breakdown Current LTMV ranges As at 20 June

2010 0-<=40% 21.3 >40%-<=50% 12.0 >50%-<=60% 14.7 >60%-<=70% 15.0 >70%-<=80% 14.2 >80%-<=100% 22.7 Source: Investor report

65



NIBC Bank NV NIBC offers merchant banking and specialised finance in sectors such as shipping, oil & gas services, infrastructure & renewables and real estate. Merchant Banking provides end-clients with investment banking products in the Benelux and Germany, while Specialised Finance focuses on asset and project financing, along with the Group's retail activities including residential mortgages and retail savings.

The bank, founded in 1945, two Dutch pension funds, ABP and PGGM, acquired 85% of NIB, creating the NIB Capital brand, while 15% was owned by the Dutch Government. In 2005, a consortium of financial institutions, led by J.C. Flowers & Co. purchased all equity interests in the bank, which changed its name to NIBC.

The NIBC covered bond programme is backed by both Dutch and German residential mortgages, and is registered with the Dutch central bank.


Table 98: NIBC Bank NV, select income statement items, €mm FY 2009 Net interest income 64 Commissions & fee income 32 Other operating income 35 Non-interest expense 187 Operating profit (loss) 165 PBT 41 Taxes -2 Net profit (loss) 43 Source: NIBC Bank NV Annual Report 2009, Bloomberg

Table 99: NIBC Bank NV, select balance sheet items, €mm FY 2009 Loans to public 8,933 Total Assets 29,189 Deposits 4,332 Short-term borrowings 2,601 Long-term borrowing 16,605 Equity 1,696 Source: NIBC Bank NV Annual Report 2009, Bloomberg

Table 100: NIBC Bank NV, select financial metrics FY 2009 NIM 0.8 ROA 0.2 ROE 2.7 ROC 0.2 C:I 53.9 Core capital 16.1 Source: NIBC Bank NV Annual Report 2009, Bloomberg


Table 101: Covered bond characteristics – Dutch assets As at 31 May

2010 S/M/F Covered Bond rating -/Aa2/AAA Issuer rating BBB/Baa2/BBB Cover pool size (€) 852,962,244 Share of total pool (in %) 76 WA Current LTFV (in %) 94.8 WA Indexed LTFV (in %) 82.6 Seasoning (mths) 67 Number of loans 4,469 Avg principal balance (borrower) 190,862 Avg principal balance (loan part) 85,561 Interest only (in %) 58.3 NHG loans (in %) 11.8 Highest regional concentration (in %) Zuid-Holland 21 Original LTFV distribution (in %) <=50% 3.0 >50%-<=60% 4.2 >60%-<=70% 6.5 >70%-<=60% 11.7 >80%-<=90% 12.9 >90%-<=100% 10.2 >100% 39.7 Source: Investor report

66



Table 102: Covered bond characteristics – German assets As at 31 May

2010 S/M/F Covered Bond rating -/Aa2/AAA Issuer rating BBB/Baa2/BBB Cover pool size (€) 276,005,072 Share of total pool (in %) 24 WA Current LTFV (in %) 65.6 WA Indexed LTFV (in %) 64.4 Seasoning (mths) 95 Number of loans 2,544 Avg principal balance (borrower) 108,493 Avg principal balance (loan part) 48,076 Annuity (in %) 94.2 Highest regional concentration (in %) NRW – 30.5 Original LTFV distribution (in %) <=50% 12.4 >50%-<=60% 22.2 >60%-<=70% 29.6 >70%-<=60% 22.9 >80%-<=90% 9.1 >90%-<=100% 2.3 >100% 1.5 Source: Investor report

67



SNS Bank NV SNS Bank NV is the mortgage lender of the SNS Reaal Group, whose product range spans mortgage and property finance, savings and investment products and insurance and pensions. SNS Reaal reached its current form in 1997, after the merger of SNS Groep, which focused mainly on retail banking, and Reaal Groep, whose main business line was insurance.

In addition to the covered bond programme, SNS has at its disposal a €25bn MTN platform and is also the originator behind one of the longest standing RMBS platforms in the Dutch market, HERMES.

The SNS covered bond programme is backed by Dutch residential mortgages, and is registered with the Dutch central bank.


Table 103: SNS Bank NV, select income statement items, €mm FY 2009 Net interest income 672 Commissions & fee income 136 Other operating income 1 Non-interest expense 1,197 PBT -99 Taxes -1 Net profit (loss) -98 Source: SNS Bank NV Annual Report 2009

Table 104: SNS Bank NV, select balance sheet items, €mm FY 2009 Real Estate Loans 13,196 Consumer Loans 50,878 Other Loans 3,405 Loans to public 70,194 Total Assets 80,289 Deposits 24,435 Short-term borrowings 16,954 Long-term borrowing 30,739 Equity 2,434 Source: SNS Bank NV Annual Report 2009

Table 105: SNS Bank NV, select financial metrics FY 2009 ROE -4.6 C:I 56.6 Core capital 10.7 RWA 18,690 Source: SNS Bank NV Annual Report 2009


Table 106: Covered bond characteristics As at 31 May

2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating A-/A3/A- Cover pool size (€) 4,654,458,636 Number of loans 52,644 Avg loan (€) 162,698 WA original LTMV (in %) 86.6 WA indexed LTMV (in %) 82.2 Remaining tenor (yrs) 24.9 WA seasoning (mths) 54.5 Interest only (in %) 81.5 Savings mtges (in %) 11.4 National mortgage guarantee (in %) 22.2 Highest regional concentration (in %) Limburg – 19.8 Source: Investor report

Table 107: Collateral pool LTFV breakdown Current LTFV ranges As at 31 May

2010 0-<=40% 4.6 >40%-<=50% 4.5 >50%-<=60% 7.7 >60%-<=70% 12.0 >70%-<=80% 18.3 >80%-<=90% 6.8 >90%-<=100% 8.7 >100% 37.4 Source: Investor report

68



69



Finn

ish

cove

red

bond

s

70



Finnish Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of Finnish covered bonds in Figure 40 and Figure 41 respectively.


0

500

1,000

1,500

2,000

2,500

2003 2004 2005 2006 2007 2008 2009

Mortgage



0

2,000

4,000

6,000

8,000

10,000

2003 2004 2005 2006 2007 2008 2009

Mortgage


Legislative snapshot We set out below in Table 108 a snapshot of key covered bond attributes in Finland.

Table 108: Covered bond overview Attribute Commentary Legislative Framework Act on Mortgage Credit Banks (1240/1999), as subsequently amended. Structure of Issuer Covered bond issuers are specialised banks (MCBs) under the Act on Mortgage

Credit Banks, with the scope of their activities limited by law. Typically issuers acquire portfolios of mortgages from their financial group.

Supervision Finnish FSA. Cover assets Residential and commercial mortgages, along with shares in housing companies up

to 60% LTV (or market value), with commercial mortgages capped at 10% of the cover pool. Both residential and commercial properties must be situated in Finland or other members of the EEA. Loans to public authorities can also be included in the cover pool, along with substitute assets (limited to a maximum of 20% of the cover pool).

Valuation Individual market values for underlying collateral. ALM matching Elimination of interest rate and currency risk through hedging. Matching by nominal

value, interest (interest received in a given 12 month period must be greater than interest due), currency and duration (average term to maturity of CB is shorter than average term to maturity of collateral assets). Monitored on a monthly basis by the FSA.

Over-collateralisation Not formally required, but committed OC protected by law. Bankruptcy remoteness Segregation of assets in a special cover register, with a preferential claim on

registered collateral. Bankruptcy of the MCB does not automatically result in acceleration of the covered bonds, except where breach of the asset eligibility criteria has occurred.




Out with the old… The Finnish government has recently announced changes to its covered bond regime, set to be implemented in H2. We highlight the main amendments below:

• Removal of the specialist bank principle, allowing direct issuance without establishment of a specific vehicle.

71



• Introduction of over-collateralisation requirements, similar to those adopted in Germany (2% NPV).

• Improved hedging standards, whereby the swap counterparties rank equal, as opposed to junior, to bondholders on issuer insolvency.

• Increase in the LTV threshold for residential property from 60% to 70%.

Finnish macro background

Figure 42: Finnish real GDP growth, y-on-y, %

-15

-10

-5

0

5

10

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 43: Finnish unemployment level, %

0

2

4

6

8

10

12

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 44: Finnish CPI and base rate, %

-2-10123456

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 45: Finnish consumer confidence, index

-10-505

10152025

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Cons. Confidence

Source: Bloomberg

Figure 46: Finnish nominal house price growth, y-on-y %

-10%

-5%

0%

5%

10%

15%

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10


Source: OECD

Figure 47: Finnish construction sector production index

020406080

100120140

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

OECD Construction production index

Source: OECD, Bloomberg

72



Aktia Real Estate Mortgage Bank plc Aktia Real Estate Mortgage Bank plc (Aktia MB) is a Finnish credit institution, specialising in mortgage loans. The bank grants loans to both individuals and housing corporations, and is regulated by the Finnish Mortgage Bank Act. The institution is owned by Aktia Bank plc (52.3% of equity, 70% voting rights), 30 savings banks (36.2%, 20%) and 39 local co-operative banks (11.5%, 10%). Aktia Group is the fourth largest banking group in Finland, acting as the central financial institution for independent savings and cooperative banks.

Aktia Real Estate Mortgage Bank plc mortgages are distributed through the branch networks of the co-operating banks. Eligible cover pool collateral is restricted to first-lien Finnish residential mortgages. Furthermore, the originator has committed to a mandatory over-collateralisation level of 8.5%. The bank funds its activities predominantly by issuing covered bonds, with short-term funding coming from a credit facility from Aktia Bank.


Table 109: Aktia Bank plc, select income statement items, €mm 2009 Net Interest Income 152.4 Net Commission Income 40.7 Total Operating Income 196.7 Total Operating Expenses -111.8 Write-Downs -31.1 Operating Profit 54.2 Profit 39.4 Source: Aktia Bank annual report 2009

Table 110: Aktia Bank plc, select balance sheet items, €mm 2009 Loans to public 6,124 Mortgage loans through Aktia branches 1,346 Mortgage loans brokered by local banks 1,290 Other loans through Aktia branches 3,488 Total assets 9,539 Source: Aktia Bank annual report 2009

Table 111: Aktia Bank plc, select financial metrics 2008 2009 Cost:Income 0.65 0.57 Capital Adequacy Ratio 13.7 15.9 Tier 1 ratio 9.3 9.5 RWA 3,313 3,460 Source: Aktia Bank annual report 2009

Table 112: Aktia Bank plc, funding profile 2009 Customer deposits 33% Covered bonds 25% Repos 15% CDs & MM 12% Local bank deposits 9% Senior debt 3% Subordinated debt 3% Source: Aktia Bank, debt investor presentation


Table 113: Covered bond characteristics As at 31 March 2010 S/M/F Covered bond rating -/Aa1/- Issuer rating (Aktia Bank plc) -/A1/- €mm Mortgages 2,772 Substitute collateral 292 Collateral pool 3,064 LTV <60% 2,541 LTV 60-70% 138 LTV 70-85% G'teed by Republic of Finland 63.4 WA LTV (%) 56.7 Average loan size (€) 79,000 WA Margin (bp) 70.1 Source: Investor report

73



OP Mortgage Bank plc OP Mortgage Bank plc is the mortgage bank of the OP-Pohjola Group, the largest financial services group in Finland. The Group includes OP Mortgage Bank, 220 member co-operative banks, their central co-operative, Pohjola Bank as the central bank of the Group and companies belonging to its member credit institutions. The member co-operative banks are independent, local deposit taking institutions engaged in retail banking. OP Mortgage Bank is regulated under the Finnish Mortgage Bank Act, and grants secured housing loans.

OP Mortgage Bank’s purpose is to grant mortgage loans through its member co-operative banks. The Bank obtains funding through the issuance of mortgage backed covered bonds, which are direct, unconditional and unsubordinated obligations of OP Mortgage Bank.


Table 114: OP-Pohjola Group, select income statement items, €mm

as at Dec 09

Net interest income 1,070 Other income 981 Total income 1,872 Total expenses 1,248 Operating profit 464 Source: OP-Pohjola Group annual report 2009

Table 115: OP-Pohjola Group, select balance sheet items, €bn as at

Dec 09 Loan portfolio 52.6 Total assets 80.4 Source: OP-Pohjola Group annual report 2009

Table 116: OP-Pohjola Group, select financial metrics 2008 2009

Cost:Income 54 53 Capital Adequacy Ratio 11.3 13.5 Tier 1 ratio 9.4 11.8 RWA 13,120 13,024 Source: OP-Pohjola Group annual report 2009


Table 117: Covered bond characteristics As at 31 March 2010 S/M/F Covered bond rating AAA/Aaa/- Issuer rating (Pohjola Bank plc) AA-/Aa2/AA- €mm Mortgages n/a Substitute collateral n/a Collateral pool 3,900 Covered bonds in issue 3,250 LTV <60% 3,750 LTV >60% (JPM estimate) 150 WA LTV (%) 47.0 Average loan size (€) 47,000 Source: Investor reports, J.P. Morgan estimates

74



Sampo Housing Loan Bank plc Sampo Housing Loan Bank plc (SHLB), is a wholly owned subsidiary of Sampo Bank plc and is constituted with the sole purpose of funding mortgages through the issuance of covered bonds. Sampo Bank plc is the third largest bank in Finland and through its Finnish parent, Sampo Group, is in turn a part of the larger Danske Bank Bank, one of the Nordic region’s largest banking groups.

Similar to other covered bond issuers in the country, SHLB is regulated by Finland's Mortgage Bank Act. The bank purchases mortgages from its parent company, and issues covered bonds under a €5bn EMTN programme. All other functions such as mortgage servicing are performed by Sampo Bank plc. To date, Sampo Housing Loan Bank has issued two transactions from its shelf, with €2bn of bonds currently outstanding.


Table 118: Sampo Bank plc, select income statement items, €mm 2009 Net Interest Income 458.9 Net Other Income 239.1 Total Operating Income 698 Total Operating Expenses -438 Write-Downs -227.3 Operating Profit 32.7 Profit 18.4 Source: Sampo Bank annual report 2009

Table 119: Sampo Bank plc, select balance sheet items, €mm 2009 Households 10,171 Corporates & housing companies 5,761 Other 888 Loans to credit institutions 3,139 Loans & receivables 19,960 Total assets 22,889 Source: Sampo Bank annual report 2009

Table 120: Sampo Bank plc, select financial metrics 2008 2009 Cost:Income (%) 63.7 57.4 Capital Adequacy Ratio (%) 14.3 14.9 Tier 1 ratio (%) 12.4 13.7 RWA (€mm) 18,998.5 17,331 Source: Sampo Bank annual report 2009


Table 121: Covered bond characteristics As at 31

December 2009 S/M/F Covered bond rating -/Aaa/- Issuer rating (Sampo Bank plc) A/A1/- €mm Mortgages 2,050.1 Substitute collateral 150.0 Collateral pool 2,200.1 LTV <60% 1,999.6 LTV > 60% 50.5 Substitute collateral 150.0 WA LTV (%) 37.59 Average loan size (€) 47,000 Source: Sampo Housing Loan Bank annual report 2009

75



Fren

ch c

over

ed b

onds

76



French Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of French covered bonds in Figure 48and Figure 49 respectively.


0

20,000

40,000

60,000

80,000

100,000

2003 2004 2005 2006 2007 2008 2009

Mix ed AssetsMortgagePublic sector



050,000

100,000150,000200,000250,000300,000350,000

2003 2004 2005 2006 2007 2008 2009

Mixed AssetsMortgagePublic sector


Legislative snapshot We set out below in Table 122 a snapshot of key covered bond attributes in France.

Table 122: Obligations Foncières overview Attribute Commentary Legislative Framework Act. No 99-532 of 25 June 1999; Decree No 99-655 of 29 July 1999; Decree No 99-

710 of 3 Aug 1999; regulation No 99-10 of the banking and finance regulation committee on SCF; Art. 16 of Act No 69-1263 of 31 December 1969

Structure of Issuer Bonds are issued by a specialised credit institution (Societe de Credit Foncier or SCF) with authorisation from the Credit Institution and Investment Companies Committee (CECEI). SCF are limited by law in their range of business activities

Supervision French Banking Commission Cover assets Mortgages: max LTV 60%, 80% for loans used to finance the purchase or

construction of a property and 100% for loans with a personal or FGAS guarantee; guaranteed loans must not exceed 35% of SCF assets Public entities: debt issued or guaranteed by a public entity. Senor units and debt securities senior units and debt issued by securitisation vehicles or similar entities where the entity is governed by the law of a EEA country, USA, Japan, Switzerland, Canada, Australia and New Zealand; limited at 20% of OF's principal value. Promissory notes: must not exceed 10% of an SCF’s assets. Substitute collateral: must not exceed 15%of privileged liabilities of the SCF

Valuation Prescribed standards. Commercial properties must be valued each year if value >€450k and loan balance >€360k or every 3yrs if loan balance <€360k

ALM matching Nominal and present value of assets has to be greater than nominal and present value of o/s bonds. Coverage ratio must exceed 100%. When calculating coverage ratio the weights are: 100% for exposure to public companies, mortgage loans, units and debt if guarantor has credit rating falling in Quality Step 1 (50% if Quality Step 2, 0% otherwise), 95% for substitute collateral

Over-collateralisation Required by law: assets >100% of o/s amount of privileged debt Bankruptcy remoteness In case of default, no new additions to the pool are allowed and no new debt is issued Compliance with EU legislation



77



Table 123: General law based covered bonds overview Attribute Commentary Legislative Framework French Monetary and Financial Code. Contracts regulated by French law Structure of Issuer The issuer is a duly licensed credit institution but with a restricted purpose. Supervision French Banking Commission Cover assets Eligibility criteria are decided by the issuers, although generally there is an LTV cap at

100%. Valuation Prescribed standards ALM matching Nominal cover only; derivatives can be used for hedging. Similar to other contract law

based CB jurisdictions, programmes typically include pre-maturity, asset coverage and amortisation tests. Pre-maturity tests are designed to ensure the borrower can provide sufficient liquidity in case of downgrade (i.e. pre-defined period prior to scheduled bond redemption, if a borrower's short-term rating is below a prescribed threshold, the borrower must fund a cash collateral account to ensure redemption). Amortisation tests are designed to ensure the issuer has the capacity to meet its obligations following a borrower EOD. Asset Coverage tests are designed to ensure that pool collateral is sufficient to meet future interest and principal cashflows on the outstanding covered bonds

Over-collateralisation Requirements prescribed by the issuers, but in the majority of cases to date programmes have typically used a 92.5% asset percentage, which corresponds to just over 8% OC

Bankruptcy remoteness Similar to the UK, in case of insolvency of the originator, the issuer exercises the financial guarantee over the pledged assets; if the issuer is insolvent, assets are transferred to an SPE


Not UCITS and CRD compliant


Table 124: CRH overview Attribute Commentary Legislative Framework Art. 13 Law 85-695 of 11 July 1985, together with art. 36 of Law 2006-872 of 13 July

2006; French Monetary and Financial Code; CRH internal rules and regulations Structure of Issuer Specialised credit institution. Owned by Credit Agricole (40%), Credit Mutuel-CIC

(33.2%), Societe Generale (12.6%), BNP Paribas (8.8%), BPCE (4.5%) Supervision French Banking Commission Cover assets CRH accepts promissory notes issued by its shareholders backed by first ranking

loans secured on a property. Max LTV is 60%, 80% for loans used to finance the construction of a property, 90% if the collateral assigned to CRH by a borrowing institution is at least 25% over the value of the corresponding promissory notes, 100% if there is a personal or FGAS guarantee. No substitute collateral

Valuation Individual market values (as for OF) ALM matching Nominal and present value coverage required. Over-collateralisation 25% by law Bankruptcy remoteness Issuers are required to have a register to record the cover assets Compliance with EU legislation



78



French macro background

Figure 50: French real GDP growth, y-on-y, %

-6

-4

-2

0

2

4

6

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 51: French unemployment level, %

0

2

4

6

8

10

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 52: French CPI and base rate, %

-10123456

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 53: French consumer confidence, balance of survey

-50

-40

-30

-20

-10

0

10

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Cons. Confidence

Source: Bloomberg

Figure 54: French house price growth, y-on-y, %

-15-10-505

101520

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

House price grow th

Source: Bloomberg

Figure 55: French dwelling sales, #

05000

10000150002000025000300003500040000

Mar

-06

Jul-0

6

Nov-

06

Mar

-07

Jul-0

7

Nov-

07

Mar

-08

Jul-0

8

Nov-

08

Mar

-09

Jul-0

9

Nov-

09

Mar

-10

Dw elling sales

Source: Bloomberg

79



Caisse de Refinancement de l'Habitat

Caisse de Refinancement de l'Habitat (CRH) is a credit institution whose ownership is split amongst a number of French banks: Crédit Agricole-Crédit Lyonnaise 40%, Crédit Mutuel CIC 33%, Société Générale 13%, BNP Paribas 9%, and BPCE 5%.

CRH was created with the sole purpose of funding French mortgages granted by its shareholder credit institutions. It does this by issuing mortgage bonds as per its own special legal framework, regulated by law 85-695 of July 1985. CRH bonds were initially backed by a guarantee from the French government, but this was withdrawn in 1988. From 2006 they have received a capital risk-weighting of 10%.

The underlying mortgage loans remain on the shareholder banks’ balance sheets, with promissory notes issued to CRH. CRH-issued bonds then mimic the same features (rate, maturities etc) of these promissory notes. By law, CRH must have a minimum over-collateralisation rate of 25%. In fact, as of June 2009, CRH bonds amount to just over €40bn, compared to a cover pool of €60bn, for an over-collateralisation level of 48%. No substitution assets are allowed in the collateral pool, while internal rules stipulate that no holdings of securitised positions are allowed.

Funds are received by CRH from the shareholder banks five business days in advance of payment on its own bonds. If one of the borrowing banks defaults, CRH acquires full ownership of the pledged collateral and is allowed to sell the portfolio and use the proceeds to buy and cancel the corresponding bonds. Furthermore, CRH could ask its shareholders to provide a back-up line of up to 5% of the outstanding loans.

The bank utilises CRH bonds for its funding needs.


Table 125: Covered bond characteristics As at 30 Jun

2009 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating n.a. Cover pool size (€) 60,200,000,000 WA LTV 48 Fixed rate (in %) 90 First lien (in %) c80 Guaranteed mtges (in %) c20 Source: Investor report

80



BNP Paribas Home Loan Covered Bonds BNP Paribas Group was created ten years ago through the merger of Banque Nationale de Paris and Paribas. Since then has continued its expansion by acquiring BNL, the sixth largest Italian bank, and 75% of Fortis Bank in Belgium and 66% of BGL in Luxembourg. The group focuses on retail baking, corporate and investment banking and investment solutions, providing services to 13mm customers in its core markets of Belgium, France, Italy and Luxembourg and a further 5mm in its secondary markets: the Mediterranean basin, Eastern Europe and the USA. BNP Paribas is the largest European banking group by deposits.

The bank utilises structured covered bonds for part of its funding needs.


Table 126: BNP Paribas Group, select income statement items, €mm FY 2009 Net interest income 21,021 Provisions for loan losses 8,369 NII less provisions 12,652 Commissions & fee income 12,276 Other operating income 5,182 Non-interest expense 28,149 Operating profit (loss) 8,569 PBT 9,000 Taxes 2,526 Net profit (loss) 5,832 Source: BNP Paribas Group Annual Report 2009, Bloomberg

Table 127: BNP Paribas Group, select balance sheet items, €mm FY 2009 Loans to public 678,766 Total Assets 2,057,698 Deposits 604,903 Short-term borrowings 1,021,434 Other short-term borrowings 85,295 Long-term borrowing 153,347 Equity 80,344 Source: BNP Paribas Group Annual Report 2009, Bloomberg

Table 128: BNP Paribas Group, select financial metrics FY 2009 NIM 1.1 ROA 0.3 ROE 10.6 ROC 0.5 C:I 57.9 Core capital 10.1 Source: BNP Paribas Group Annual Report 2009, Bloomberg



2010 Covered Bond rating S/M/F AAA/Aaa/AAA Issuer rating S/M/F AA/Aa2/AA- Cover pool size (€) 31,500,969,171 Number of loans 327,464 Avg loan (€) 96,197 WA current LTV (in %) 69.6 WA current indexed LTV (in %) 66.6 Remaining tenor (mths) 187.1 WA seasoning (mths) 45.6 Owner occupied property (in %) 79 Buy-to-let (in %) 17 Employed borrower (in %) 80 Self-employed borrower (in %) 14 Unemployed borrower (in %) 5 Source: Investor report


2010 0-<=40% 13.7 >40%-<=50% 7.6 >50%-<=60% 9.1 >60%-<=70% 11.3 >70%-<=80% 15.2 >80%-<=90% 21.8 >90%-<=100% 21.3 Source: Investor report

81



Compagnie de Financement Foncier SCF The main business of Crédit Foncier de France, founded in 1852, is to originate mortgage loans and local authority loans and to issue bonds to finance these loans. The company is a wholly owned subsidiary of Crédit Foncier (A/Aa3/A+) and an affiliate of BPCE (A+/Aa3/A+).

Compagnie de Financement Foncier (CFF) gained its current status as a SCF in 1999, when old secured loans as well as eligible assets and liabilities were transferred to CFF to make it compliant with the new law on SCF (Act of 25 June 1999).

CFF adopted a minimum OC ratio of 5% for it’s OF and in 2009 issued €15.8bn of covered bonds, of which 78% was purchased by public investors, while the remaining 22% was placed privately.

The bank utilises obligation foncieres for part of its funding needs.


Table 131: CFF SCF, select income statement items, €mm FY 2009 Net interest income 358 Commissions & fee income 41 Other operating income 3 Non-interest expense 115 Operating profit (loss) 258 PBT 258 Taxes 83 Net profit (loss) 175 Source: CFF SCF Annual report 2009

Table 132: CFF SCF, select balance sheet items, €mm FY 2009 Bonds 45,107Loans to public 49,929 Total Assets 98,245 Deposits 5 Short-term borrowings 242 Long-term borrowing 81,957 Equity 1,560 Source: CFF SCF Annual report 2009



December 2009 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating A/Aa3/A+ Cover pool size (€bn) 98.25 Asset type (in %) Mortgage loans, of which: 32.97 Mortgage loans and related items 18.66 European RMBS 14.31 Public sector exposures, of which: 52.62 Mortgage loans guaranteed by the public sector 10.88 French public sector loans 19.09 International public sector loans 22.65 Other assets, of which: 12.66 Replacement securities 9.45 Other assets 3.21 Coverage ratio as per SCF law 10.5 Source: CFF SCF Annual report 2009

82



Crédit Agricole Covered Bonds The Credit Agricole Group offers retail banking and corporate and investment baking products and specialised financial services. The group operates globally (it is the largest retail bank in France and the second largest banking group by revenues in Europe and has operations in 70 countries), although its core markets are France (where it has 28% of the household market), Italy and Greece.

Activities within the Group are organised into three, broad business lines. Retail banking in France and abroad; Specialised Business lines including asset management, insurance, private banking and consumer finance, leasing and factoring; and Corporate and Investment banking.



Table 134: Crédit Agricole SA, select income statement items, €mm FY 2009 Net interest income 14,290 Provisions for loan losses 4,689 NII less provisions 9,601 Commissions & fee income 9,798 Other operating income -6,179 Non-interest expense 17,204 Operating profit (loss) 1,093 PBT 1,657 Taxes 211 Net profit (loss) 1,125 Source: Crédit Agricole SA Annual Report 2009, Bloomberg

Table 135: Crédit Agricole SA, select balance sheet items, €mm FY 2009 Loans to public 362,348 Total Assets 1,557,342 Deposits 464,080 Short-term borrowings 341,064 Other short-term borrowings 99,631 Long-term borrowing 378,779 Equity 51,964 Source: Crédit Agricole SA Annual Report 2009, Bloomberg

Table 136: Crédit Agricole SA, select financial metrics FY 2009 NIM 1.0 ROA 0.1 ROE 2.6 ROC 0.2 C:I 67.8 Core capital 9.5 Source: Crédit Agricole SA Annual Report 2009, Bloomberg



2010 Covered Bond rating S/M/F AAA/Aaa/AAA Issuer rating S/M/F AA-/Aa1/AA- Cover pool size (€) 8,241,166,343 Number of loans 172,402 Avg loan (€) 47,802 WA current LTV (in %) 63.6 WA current indexed LTV (in %) 54.1 Remaining tenor (mths) 168 WA seasoning (mths) 59 Owner occupied property (in %) 86.6 Buy-to-let (in %) 10.8 Employed borrower (in %) 80.1 Self-employed borrower (in %) 13.9 Unemployed borrower (in %) 5.4 Source: Investor report

Table 138: Collateral pool LTFV breakdown Current LTFV ranges As at 30 April


83



Crédit Mutuel Arkéa Covered Bonds Crédit Mutuel Arkéa is a cooperative credit union formed by the federations of Crédit Mutuel du Bretagne, Crédit Mutuel du Sud-Ouest, Crédit Mutuel du Massif Central and around 20 other specialised lenders, for a total of around 600 local saving banks and branches, serving 3.1mm customers.

The group offers a range of financial services, including retail banking, insurance and investment products.



Table 139: Crédit Mutuel Arkea Group, select income statement items, €mm FY 2009 Net interest income 610 Commissions & fee income 429 Other operating income 5,350 Non-interest expense 971 Operating profit (loss) 200 PBT 208 Taxes 46 Net profit (loss) 161 Source: Crédit Mutuel Arkea Group Annual Report 2009

Table 140: Crédit Mutuel Arkea Group, select balance sheet items, €mm FY 2009 Loans to public 30,863 Total Assets 72,362 Deposits 21,168 Short-term borrowings 5,700 Other short-term borrowings 1,493 Equity 3,507 Source: Crédit Mutuel Arkea Group Annual Report 2009

Table 141: Crédit Mutuel Arkea Group, select financial metrics FY 2009 ROE 5.9 C:I 72.1 Core capital 15.4 Source: Crédit Mutuel Arkea Group Annual Report 2009



2010 Covered Bond rating S/M/F AAA/-/- Issuer rating S/M/F A+/-/- Cover pool size (€) 2,089,414,334 Number of loans 37,205 Avg loan (€) 68,257 WA current LTV (in %) 67 WA current indexed LTV (in %) 64 Remaining tenor (mths) 169 WA seasoning (mths) 44 Owner occupied property (in %) 85 Buy-to-let (in %) 11 Employed borrower (in %) 84 Self-employed borrower (in %) 13 Unemployed borrower (in %) 3 Source: Investor report



84



Crédit Mutuel-CIC Covered Bonds The CM-CIC Group operates along different business lines. Banque Fédérative du Crédit Mutuel (BFCM) manages the general interest of the specialised branches of the group, is involved in the financing of large-scale projects and is active on the financial markets.

Banque de l'Economie is the corporate bank of the Group for industrial and trading companies. CM-CIC also owns a real estate agency and offers insurance products. CMCIC CB is registered as a limited liability company and license to act as a credit institution with limited purpose. Its sole activity if to finance residential mortgages for CMCEE-CIC group.



Table 144: Crédit Mutuel - CIC, select income statement items, €mm FY 2009 Net interest income 7,392 Provisions for loan losses 2,614 NII less provisions 4,778 Commissions & fee income 4,411 Other operating income 2,253 Non-interest expense 9,193 Operating profit (loss) 2,835 PBT 2,742 Taxes 860 Net profit (loss) 1,831 Source: Bloomberg

Table 145: Crédit Mutuel - CIC, select balance sheet items, €mm FY 2009 Real estate loans 159,402

Loans to public 304,511 Total Assets 579,038 Deposits 218,431 Short-term borrowings 40,065 Other short-term borrowings 16,738 Long-term borrowing 173,301 Equity 30,619 Source: Bloomberg

Table 146: Crédit Mutuel - CIC, select financial metrics FY 2009 NIM 1.4 ROA 0.3 ROE 6.7 ROC 0.7 C:I 59.9 Core capital 11.8 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating (Credit Mutuel) A+/Aa3/AA- Cover pool size (€) 25,389,180,293 Number of loans 293,887 Avg loan (€) 86,391 WA current LTV (in %) 68 WA current indexed LTV (in %) 60 Remaining tenor (mths) 192 WA seasoning (mths) 49 Fixed rate (in %) 83 Owner occupied property (in %) 84 Buy-to-let (in %) 14 Loans with guarantor (in %) 59 First liens (in %) 41 Source: Investor report



85



Groupe Caisse d'Épargne Covered Bonds Caisse d'Épargne is one of the two brands of the BPCE Group, together with Banques Populaires. The two cooperative groups merged in July 2009 to create the second largest French banking group. The group provides banking, financial and real estate services to all types of customers, with Caisse d'Épargne more focused on the retail sector, while Banques Populaires specialises in services to SMEs, professionals and high net worth individuals. The group also includes Natixis, which provides corporate and investment banking services.

Groupe BPCE also owns Credit Foncier de France, which in turn owns Compaganie de Financement Foncier (CFF).



Table 149: Groupe BPCE, select income statement items, €mm FY 2009 Net interest income 12,752 Commissions & fee income 8,705 Other operating income 11,804 Non-interest expense 16,359 Operating profit (loss) 723 PBT -368 Taxes -293 Net profit (loss) -75 Source: Groupe BPCE Annual report 2009

Table 150: Groupe BPCE, select balance sheet items, €mm FY 2009 Loans to public 309,855 Total Assets 1,028,802 Deposits 14,941 Short-term borrowings 77,057 Long-term borrowing 124,755 Equity 47,794 Source: Groupe BPCE Annual report 2009

Table 151: Groupe BPCE, select financial metrics FY 2009 C:I 69.0 Core capital 9.1 Source: Groupe BPCE Annual report 2009



2010 S/M/F Covered Bond rating AAA/Aaa/- Issuer rating (BPCE) A+/Aa3/A+ Cover pool size (€) 32,515,.032,832 Number of loans 608,015 Avg loan (€) 53,477 WA current LTV (in %) 67.0 WA current indexed LTV (in %) 63.3 Remaining tenor (mths) 181 WA seasoning (mths) 51 Fixed rate (in %) 91 Owner occupied property (in %) 93 Buy-to-let (in %) 5 Employed (in %) 93.7 Self employed (in %) 4 Source: Investor report



86



HSBC France Covered Bonds HSBC France (HBFR) is part o the HSBC Group, one of the largest banking groups globally and headquartered in the UK. HSBC France was created by the combination of five banks (CCF, UBP, Banque de Picardie, Banque de Baecque Beau and the Paris branches of Banque Hervet), which were rebranded in 2005 under the HSBC logo.

HSBC France operates through 380 branches offering global banking and markets, asset management, insurance and private banking services.



Table 154: HSBC Group, select income statement items, €mm FY 2009 Net interest income 29,379 Provisions for loan losses 19,047 NII less provisions 10,332 Commissions & fee income 15,390 Other operating income 5,074 Non-interest expense 28,007 Operating profit (loss) 10,255 PBT 5,090 Taxes 277 Net profit (loss) 4,195 Source: Bloomberg

Table 155: HSBC Group, select balance sheet items, €mm FY 2009 Real estate loans 48,419 Commercial loans 335,551 Consumer loans 302,984 Other loans 4,668 Loans to public 625,379 Total Assets 1,649,900 Deposits 808,760 Short-term borrowings 140,882 Other short-term borrowings 295,987 Long-term borrowing 70,022 Equity 94,663 Source: Bloomberg

Table 156: HSBC Group, select financial metrics FY 2009 NIM 2.2 ROA 0.2 ROE 5.0 ROC 1.5 C:I 46.4 Core capital 10.8 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/- Issuer rating (HSBC France) AA/Aa3/AA Cover pool size (€) 3,844,669,487 Number of loans 29,177 Avg loan (€) 131,771 WA current LTV (in %) 68.4 WA current indexed LTV (in %) 63.1 Remaining tenor (mths) 171 WA seasoning (mths) 46 Owner occupied property (in %) 76 Buy-to-let (in %) 16 Employed (in %) 72.5 Self employed (in %) 21 Source: Investor report



87



Banque Populaires SCF Together with Caisse d'Épargne, Banques Populaires is one of the two brands of the BPCE Group. The two cooperative groups merged in July 2009 to create the second largest French banking group.

The group provides banking, financial and real estate services to all types of customers, with Caisse d’Épargne more focused on the retail sector, while Banques Populaires, whose baking network consists of 20 banques populaires, specialises in services to SMEs, professionals and high net worth individuals. The group also includes Natixis, which provides corporate and investment banking services.

Unlike Groupe Caisse d'Épargne, BP utilises obligation foncieres for part of its funding.


Table 159: Groupe BPCE, select income statement items, €mm FY 2009 Net interest income 12,752 Commissions & fee income 8,705 Other operating income 11,804 Non-interest expense 16,359 Operating profit (loss) 723 PBT -368 Taxes -293 Net profit (loss) -75 Source: Groupe BPCE Annual report 2009

Table 160: Groupe BPCE, select balance sheet items, €mm FY 2009 Loans to public 309,855 Total Assets 1,028,802 Deposits 14,941 Short-term borrowings 77,057 Long-term borrowing 124,755 Equity 47,794 Source: Groupe BPCE Annual report 2009

Table 161: Groupe BPCE, select financial metrics FY 2009 C:I 69.0 Core capital 9.1 Source: Groupe BPCE Annual report 2009



2010 S/M/F Covered Bond rating AAA/Aaa/- Issuer rating (BPCE) A+/Aa3/A+ Cover pool size (€) 20,412,130,702 Number of loans 315,200 Avg loan (€) 64,759 WA current LTV (in %) 69 WA current indexed LTV (in %) 62 Remaining tenor (mths) 177 WA seasoning (mths) 43 Owner occupied property (in %) 90 Buy-to-let (in %) 8 Employed (in %) 82.2 Self employed (in %) 15 Source: Investor report



88



BNP Paribas Public Sector SCF BNP Paribas Group was created ten years ago through the merger of Banque Nationale de Paris and Paribas. Since then has continued its expansion by acquiring BNL, the sixth largest Italian bank, and 75% of Fortis Bank in Belgium and 66% of BGL in Luxembourg. The group focuses on retail baking, corporate and investment banking and investment solutions, providing services to 13mm customers in its core markets of Belgium, France, Italy and Luxembourg and a further 5mm in its secondary markets: the Mediterranean basin, Eastern Europe and the USA. BNP Paribas is the largest European banking group by deposits.

Unlike BNP Paribas Home Loans CB, BNP Paribas public sector SCF utilises obligation foncieres for part of its funding.


Table 164: BNP Paribas Group, select income statement items, €mm FY 2009 Net interest income 21,021 Provisions for loan losses 8,369 NII less provisions 12,652 Commissions & fee income 12,276 Other operating income 5,182 Non-interest expense 28,149 Operating profit (loss) 8,569 PBT 9,000 Taxes 2,526 Net profit (loss) 5,832 Source: BNP Paribas Group Annual Report 2009, Bloomberg

Table 165: BNP Paribas Group, select balance sheet items, €mm FY 2009 Loans to public 678,766 Total Assets 2,057,698 Deposits 604,903 Short-term borrowings 1,021,434 Other short-term borrowings 85,295 Long-term borrowing 153,347 Equity 80,344 Source: BNP Paribas Group Annual Report 2009, Bloomberg

Table 166: BNP Paribas Group, select financial metrics FY 2009 NIM 1.1 ROA 0.3 ROE 10.6 ROC 0.5 C:I 57.9 Core capital 10.1 Source: BNP Paribas Group Annual Report 2009, Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating S/M/F AA/Aa2/AA- Cover pool size (€) 2,364,000,000 Country of guarantor (in %) France 42 USA 27 Germany 21 UK 10 Country of borrowers (in %) China 23 Chile 22 Ireland 14 USA 12 Australia 7 Others 22 Borrowers by sector (in %) Aviation 76 Transport 12 Energy 9 Other 3 Currency split (in %) USD 73 EUR 20 AUD 7 Asset types (in %) AAA sovereign backed loans 92 Other 8 Source: Investor report

89



CIF Euromortgage SCF CIF Euromortgage is the SCF of the Crédit Immobilier de France (CIF), a credit institution focused solely on the distribution of residential mortgages in France. CIF Euromortgage’s sole purpose is to raise funds necessary for CIF to lend to its customers. CIF operates through 12 subsidiaries, each serving a specific geographic market and with its own shareholder base.

The funding activity of CIF Euromortgage is organised around CIF's two securitisation vehicles, CIS Assets (created in 2001 as a multi-series FCC or SPV) and BPI Master Mortgage (created in 2003 with the sole purpose of purchasing home loans originated by Banque Patrimoine et Immobilier). CIF Euromortgage’s primary purpose is to purchase all the AAA/Aaa senior notes issued by these two SPVs, and to use them as collateral for its cover pool.



Table 168: CIF EuroMortgage SCF, select income statement items, €mm FY 2009 Net interest income 10 Net banking income 9 PBT 5 Taxes 2 Net profit (loss) 3 Source: CIF EuroMortgage SCF Annual report 2009

Table 169: CIF EuroMortgage SCF, select balance sheet items, €mm FY 2009 Total Assets 24,617 Long term borrowings 330 Equity 211 Source: CIF EuroMortgage SCF Annual report 2009


Table 170: Covered bond characteristics As at 31 Dec

2009 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating A/A1 Cover pool size (€) 24,616,500,000 Asset type (in %) CIF Assets 62 Replacement portfolio 15 CIF Mortgage promissory notes 9 BPI Master mortgage 8 AAA-rated European RMBS 6 Source: Investor report

90



Dexia Municipal Agency SCF Dexia Municipal Agency (DexMA) is the SCF of the Dexia Group, whose sole activity is to finance local governments in the EEA area, the USA, Canada and Japan (although France remains its main market) and issue covered bonds. It is a wholly owned subsidiary of Dexia Crédit Local, the French public finance arm of the Dexia group.

The Dexia group is active in public and project finance, personal finance, investment management, insurance and treasury and financial market. The group is the leader in public sector financing in Europe and its main markets are Belgium (market share of 80%), France (market share of 42%) and Italy (market share of 20%).



Table 171: Dexia Municipal Agency, select income statement items, €mm FY 2009 Net interest income 282 Commissions & fee income Other operating income Non-interest expense 92 Operating profit (loss) 207 PBT 207 Taxes 73 Net profit (loss) 134 Source: Dexia Municipal Agency Annual report 2009

Table 172: Dexia Municipal Agency, select balance sheet items, €mm FY 2009 Loans 78,870 Total Assets 85,830 Long-term borrowing 65,933 Equity 990 Source: Dexia Municipal Agency Annual report 2009



2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating -/-/A+ Cover pool size (€) 79,880,000,000 Country split (in %) France 62.4 Belgium 10.7 Italy 9.7 Switzerland 5.8 Spain 4.0 Luxembourg 3.0 Other 4.5 Collateral type (in %) Loans to local governments 69.5 Bonds 30.5 Source: Investor report

91



General Electric SCF GE Money Bank France is part of GE Capital, in turn part of the General Electric Group. GE Capital provides a wide range of products from consumer lending to financial products for businesses throughout the world. In France, GE Money Bank focuses on the financing of vehicles, houses and consumer credit.




2010 S/M/F Covered Bond rating AAA/Aaa/- Cover pool size (€) 1,732,179,903 Number of loans 20,269 Avg loan (€) 85,460 WA current LTV (in %) 73.4 WA current indexed LTV (in %) 70.8 Remaining tenor (mths) 191 WA seasoning (mths) 57 Fixed rate (in %) Owner occupied property (in %) 62 Buy-to-let (in %) 23 Employed (in %) 82 Self employed (in %) 15 Source: Investor report

Table 175: Collateral pool LTFV breakdown Current LTFV ranges As at 31 March

2010 0-<=40% 10.5 >40%-<=50% 7.6 >50%-<=60% 10.2 >60%-<=70% 12.1 >70%-<=80% 16.7 >80%-<=90% 11.0 >90%-<=100% 20. >100% 11.1 Source: Investor report

92



Société Générale SCF Société Générale SCF is the SCF set up by Société Générale, one of the largest French financial institutions. The objective of SG SCF is to provide funding for SG’s public-sector loan book. The cover pool consists entirely of loans to French public entities.

SG’s product offer ranges from corporate and investment banking to retail banking, insurance, private finance and investment management services.



Table 176: Société Générale SCF, select income statement items, €mm FY 2009 Net interest income 106 PBT 7 Taxes 2 Net profit (loss) 5 Source: Société Générale SCF Annual report 2009

Table 177: Société Générale, select balance sheet items, €mm FY 2009 Loans 6,231 Total Assets 7,244 Long-term borrowing 6,273 Equity 56 Source: Société Générale SCF Annual report 2009



2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating (SG) A+/Aa2/A+ Cover pool size (€) 9,495,816,412 Number of loans 1087 France (in %) 100 Borrower type (in %) Regions 14 Departments 32 Districts 13 Districts groups 13 Public health complex 1 Syndicates 8 Other 6 Fixed rate loans (in %) 57 Over-collateralisation (in %) 107.1 Source: Investor report

93



Ger

man

cov

ered

bon

ds

94



German Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of German covered bonds in Figure 56 and Figure 57 respectively.


0

50,000

100,000

150,000

200,000

250,000

2003 2004 2005 2006 2007 2008 2009

ShipsMortgagePublic sector



0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2003 2004 2005 2006 2007 2008 2009

ShipsMortgagePublic sector


Legislative snapshot We set out in Table 179 a snapshot of key covered bond attributes in Germany.

Table 179: Covered bond overview Attribute Commentary Legislative Framework German Pfandbrief Act (Pfandbriefgesetz of 2005) and Regulations to the Pfandbrief

Act (as of September 2009); Net Present Value Regulation (Barwertverordnung); Regulation on the Determination of the Mortgage Lending Value (Beleihungswertermittlungsverordnung); Cover Register Statutory Order (Deckungsregisterverordnung); Funding Register Statutory Order (Refinanzierungsregisterverordnung); §§ 22a – German Banking Act (Kreditwesengesetz)

Structure of Issuer Since 2005, pfandbrief issuers no longer need to be specialised banks. Bonds are therefore issued directly off the balance sheet of the lender, although a special pfandbrief licence is required

Supervision Federal Financial Supervisory Authority; German Banking Supervisory Authority (BaFin). A cover pool monitor also supervises the cover pool

Cover assets Four broad types of collateral allowed in their own, specific bonds: a) Mortgages or Hypothekenpfandbrief - residential or commercial, only first 60% LTV can be classified as collateral. Land or mortgages on properties under construction are limited at 10% of collateral value; b) Public loans or Oeffentlichepfandbrief - granted to or guaranteed by public authorities with a RSA risk weight less than 20% and from EU, EEA, Japan, Canada, USA, Switzerland and other European OECD members. c) Ship loans or Schiffspfandbrief - only first 60% LTV can be classified as collateral and finally d) Aircraft loans or Flugzeugpfandbrief. The geographical scope of the collateral can be EEA, Switzerland, USA, Canada and Japan. The total amount of loans granted to non-EU countries where the preferential right of pfandbrief creditors is uncertain is limited to 10%, or 20% for aircraft and ship exposures. Derivatives are also eligible cover assets, up to a maximum of 12% of the pool on an NPV basis

Valuation Individual market values, with monitoring requirements for commercial property exposures each year, and every three years for residential properties

ALM matching Eligible assets must be 102% of liabilities at all times on an NPV basis. Derivatives can be used to help meet cashflow requirements

Over-collateralisation Required 2% on NPV basis Bankruptcy remoteness Issuers are required to have a register to record the cover assets. Insolvency of the

originating institution does not accelerate payments under the covered bonds. On insolvency, a special cover pool administrator (Sachwalter) carries out the administration of the cover assets




95



German macro background

Figure 58: German real GDP growth, y-on-y, %

-8-6-4-20246

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 59: German unemployment level, %

02468

101214

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 60: German CPI and base rate, %

-10123456

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 61: German consumer confidence, balance of survey

0

20

40

60

80

100

120

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Cons. Confidence

Source: Bloomberg

Figure 62: German nominal house price growth, %

-4%

-3%

-2%

-1%

0%

1%

2%

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Nominal house price grow th

Source: OECD

Figure 63: German residential construction orders index, #

0

50

100

150

200

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Residential construction orders index

Source: Bloomberg

96



Aareal Bank AG The Aareal Bank Group is a specialist in property finance and related services and operates in 19 countries.

The business model is made up of two segments: structured property financing – including the institution’s property financing activities as well as this consists of advising and assisting clients in realising real estate projects; consulting/services – this unit of the group provides a range of services to clients in the institutional housing industry in Germany, including IT systems, payment transactions systems and real estate portfolio management.


Table 180: Aareal Bank AG, select income statement items, €mm FY 2009 Net interest income 460 Provisions for loan losses 150 NII less provisions 310 Commissions & fee income 188 Other operating income 30 Non-interest expense 460 Operating profit (loss) 88 PBT 87 Taxes 20 Net profit (loss) 49 Source: Bloomberg

Table 181: Aareal Bank AG, select balance sheet items, €mm FY 2009 Loans to public 23,176 Total Assets 39,569 Deposits 21,361 Short-term borrowings 5,083 Long-term borrowing 9,131 Equity 2,077 Source: Bloomberg

Table 182: Aareal Bank AG, select financial metrics FY 2009 NIM 1.2 ROA 0.1 ROE 3.9 ROC 0.4 C:I 63.0 Core capital 11.0 Source: Bloomberg


Table 183: Public-sector covered bond characteristics As at 31 Mar

2010 S/M/F Covered Bond rating -/-/AAA Issuer rating -/-/A- Cover pool size (€) 3,168,100,000 Overcollateralisation (€) 400,200,000 Borrower type (in %) German Federal States 64 EU countries 23 German Landesbanken 6 German Federal Government 4 Other 3 Ratings split (in %) AAA 74 AA (Fitch) 9 A 0 BBB 0 At least AA (S/M) 8 Other 9 Risk weighting split (in %) Solvency 0 90 Solvency 20 10 Source: Investor report

Table 184: Mortgage covered bond characteristics Current LTMV ranges As at 31 Mar

2010 S/M/F Covered Bond rating -/-/AAA Issuer rating -/-/A- Cover pool size (€) 8,818,400,000 Over-collateralisation (€) 1,647,000,000 Geographical split (in %) Western Europe ex. Germany 25 Southern Europe 20 Germany 18 Northern Europe 16 North America 12 Eastern Europe 9 Property type (in %) Office 37 Retail 22 Logistic 13 Residential 13 Hotel 12 Other 3 Source: Investor report

97



Bayerische Landesbank (BayernLB) BayernLB is a leading commercial bank for large and middle-market corporate customers in Germany and Europe whilst also catering for retail customers. It works closely with the Sparkassen-Finanzgruppe in Bavaria, other Bavarian savings banks and the Bavarian State. In particular, BayernLB's products are sold via other saving banks, which act as customers, owners and sales partners.

The core lines of business are public sector financing and institutional investors; real estate – long term commercial financing to residential property developers and construction companies; middle market finance and consulting; corporate banking and retail banking through its Deutsche Kreditbank subsidiary.


Table 185: BayernLB, select income statement items, €mm FY 2009 Net interest income 2,562 Provisions for loan losses 3,277 NII less provisions -715 Commissions & fee income 1,040 Other operating income 461 Non-interest expense 2,731 Operating profit (loss) -2,395 PBT -2,765 Taxes 328 Net profit (loss) -2,619 Source: Bloomberg

Table 186: BayernLB, select balance sheet items, €mm FY 2009 Loans to public 156,142 Total Assets 338,818 Deposits 92,197 Short-term borrowings 91,484 Long-term borrowing 101,685 Equity 14,061 Source: Bloomberg

Table 187: BayernLB, select financial metrics FY 2009 NIM 0.7 ROA -0.7 ROE -23.4 ROC -1.3 C:I 70.7 Core capital 10.9 Source: Bloomberg


Table 188: Public-sector covered bond characteristics As at 30 June

2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating -/A1/A+ Cover pool size (€) 478,987,000,000 Overcollateralisation (in %) 45.8 Geographical split (in %) Germany 91 Switzerland 4 Other 5 Borrowers type (in %) Other public assets 47 States 28 Municipalities 16 Sovereign 3 Additional cover 6 Source: Investor report

Table 189: Mortgage covered bond characteristics As at 30 June

2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating -/A1/A+ Cover pool size (€) 10,645,000,000 Overcollateralisation (in %) 42.8 Geographical split (in %) Germany 70 UK 10 France 5 Italy 5 USA 4 Other 6 Property type (in %) Office 35 Residential 28 Retail 23 Mixed Commercial 8 Other 6 Source: Investor report

98



Berlin-Hannoversche Hypothekenbank Berlin Hyp is a real estate financing bank and one of the leading mortgage-lending institutions in Germany. In conjuction with its parent company, the Landebank Berlin, it offers a wide range of financial services and products.


Table 190: Berlin-Hannoversche Hypothekenbank, select income statement items, €mm FY 2009 Net interest income 214 Provisions for loan losses 63 NII less provisions 151 Commissions & fee income 14 Other operating income 7 Non-interest expense 94 Operating profit (loss) 78 PBT 78 Taxes 19 Net profit (loss) 59 Source: Bloomberg

Table 191: Berlin-Hannoversche Hypothekenbank, select balance sheet items, €mm FY 2009 Loans to public 23,201 Total Assets 41,291 Deposits 7,952 Short-term borrowings 11,191 Long-term borrowing 21,085 Equity 789 Source: Bloomberg

Table 192: Berlin-Hannoversche Hypothekenbank, select financial metrics FY 2009 NIM 0.5 ROA 0.1 ROE 7.8 ROC 0.2 C:I 38.3 Core capital 7.6 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating -/-/A+ Cover pool size (€) 14,471,500,000 Overcollateralisation (€) 1,604,800,000 Geographical split (in %) Germany 90 Austria 3 Other 7 Borrowers type (in %) Regional Authorities 58 Central Government 37 Other 5 Source: Investor report

Table 194: Mortgage covered bond characteristics As at 31 Mar

2010 S/M/F Covered Bond rating -/Aa1/AA+ Issuer rating -/-/A+ Cover pool size (€) 11,659,300,000 Overcollateralisation (€) 962,100,000 Geographical split (in %) Germany 90 France 4 UK 3 Other 3 Property type (in %) Office 24 Residential 25 Retail 15 Mixed Commercial 31 Other 5 Source: Investor report

99



Bremer Landesbank Bremer Landesbank is the leading regional and commercial bank in the North West of Germany. The institution has a business volume of €41bn in 2009. Its two shareholders are the Norddeutsche Landesbank with 92.5% and the State of Bremen with 7.5%.

The bank has three types of pfandbrief in circulation, with public-sector, mortgage and shipping bonds available.


Table 195: Bremer Landesbank, select income statement items, €mm FY 2009 Net interest income 249 Provisions for loan losses 141 NII less provisions 108 Commissions & fee income 59 Other operating income 6 Non-interest expense 163 Operating profit (loss) 75 PBT 79 Taxes 21 Net profit (loss) 58 Source: Bloomberg

Table 196: Bremer Landesbank, select balance sheet items, €mm FY 2009 Loans to public 20,721 Total Assets 33,787 Deposits 10,236 Short-term borrowings 5,653 Other short-term borrowings 407 Long-term borrowing 16,530 Equity 960 Source: Bloomberg

Table 197: Bremer Landesbank, select financial metrics FY 2009 NIM 0.7 ROA 0.2 ROE 6.1 ROC 0.2 C:I 39.7 Core capital 9.3 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating -/Aa2/A Cover pool size (€) 4,317,000,000 Over-collateralisation (€) 731,420,000 Over-collateralisation (in %) 20.4 Borrowers type (in %) Local Authorities 45 Regional Authorities 45 State 1 Other 9 Source: Investor report


2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating -/Aa2/A Cover pool size (€) 882,119,000 Over-collateralisation (€) 460,390,000 Over-collateralisation (in %) 109.2 Property type (in %) Office 2.4 Residential 55.0 Retail 3.5 Mixed Commercial 25.5 Extra collateral 13.6 Source: Investor report

Table 200: Ship covered bond characteristics As at 30 June

2010 S/M/F Covered Bond rating n/a Issuer rating -/Aa2/A Cover pool size (€) 884,920,000 Over-collateralisation (€) 424,590,000 Over-collateralisation (in %) 92.2 Geographical split (in %) Germany 80 Malta 4 Netherlands 3 Greece 3 Cyrpus 3 Gibraltar 2 Other 3 Source: Investor report

100



Corealcredit Bank AG Coreralcredit is a specialist real estate and commercial lending bank. The bank offers real estate solutions for both German and international clients, although its main market remains the domestic one.

As well as the tried and tested method of refinancing via Mortgage Pfandbriefe, Corealcreditbank also makes use of securitisation and syndication. Business with the public sector has been discontinued and as such the cover pool will be run off according to the maturity of the bonds.


Table 201: Corealcredit, select income statement items, €mm FY 2009 Net interest income 72 Provisions for loan losses 24 NII less provisions 48 Commissions & fee income 7 Other operating income 11 Non-interest expense 64 Operating profit (loss) -3 PBT -2 Taxes -5 Net profit (loss) 3 Source: Bloomberg

Table 202: Corealcredit, select balance sheet items, €mm FY 2009 Loans to public 5,632 Total Assets 11,375 Deposits 2,773 Short-term borrowings 2,170 Long-term borrowing 5,510 Equity 696 Source: Bloomberg

Table 203: Corealcredit, select financial metrics FY 2009 NIM 0.6 ROA 0.0 ROE 0.4 ROC 0.0 C:I 74.3 Source: Bloomberg


Table 204: Public-sector covered bond characteristics As at 30 Jun

2010 S/M/F Covered Bond rating -/-/AAA Issuer rating -/-/BBB- Cover pool size (€) 2,256,500,000 Overcollateralisation (€) 125,000,000 Geographical split (in %) Germany 73 Austria 14 Hungary 5 Greece 4 Other 4 Other 4 Source: Investor report

Table 205: Mortgage covered bond characteristics Current LTMV ranges As at 30 Jun

2010 S/M/F Covered Bond rating -/-/AA- Issuer rating -/-/BBB- Cover pool size (€) 3,942,500,000 Overcollateralisation (€) 505,000,000 Property type (in %) Residential 40 Office 26 Mixed Commercial 20 Retail 13 Industrial 1 Source: Investor report

101



DekaBank Deutsche Girozentrale DekaBank is the German Savings Bank Finance Group's central asset manager. The German Savings Banks and Giro Association and a group of Landebanken each own 50% of DekaBank.

With managed fund assets of about € 160 billion, more than five million customer deposits and group locations in Luxembourg and Switzerland, the DekaBank Group is one of the largest asset managers in Germany, with the savings banks and Landesbanken as exclusive sales partners for its products.

The three main lines of business are asset management-capital markets, asset management-property and corporate banking and markets, plus a central savings banks sales unit.


Table 206: DekaBank Deutsche Girozentrale, select income statement items, €mm FY 2009 Net interest income 453 Provisions for loan losses 352 NII less provisions 100 Commissions & fee income 2,280 Non-interest expense 2,135 Operating profit (loss) 520 PBT 498 Taxes 150 Net profit (loss) 386 Source: Bloomberg

Table 207: DekaBank Deutsche Girozentrale, select balance sheet items, €mm FY 2009 Loans to public 23,489 Total Assets 133,283 Deposits 23,773 Short-term borrowings 14,906 Other short-term borrowings 55,704 Long-term borrowing 35,400 Equity 3,500 Source: Bloomberg

Table 208: DekaBank Deutsche Girozentrale, select financial metrics FY 2009 NIM 0.3 ROA 0.3 ROE 11.6 ROC 0.6 C:I 48.9 Core capital 12.7 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/- Issuer rating A/Aa2/- Cover pool size (€) 23,732,221,300 Over-collateralisation (€) 3,249,374,604 Geographical split (in %) Germany 88 Mixed America 3 Other 9 Borrower type (in %) Regional authorities 10 Local authorities 4 State 2 Other 84 Source: Investor report

Table 210: Mortgage covered bond characteristics Current LTMV ranges As at 30 June

2010 S/M/F Covered Bond rating AAA/Aaa/- Issuer rating A/Aa2/- Cover pool size (€) 129,905,280 Over-collateralisation (€) 114,905,250 Property type (in %) Office 52 Retail 29 Industrial 12 Other collateral 7 Source: Investor report

102



Deutsche Apotheker und Aertzebank Deutsche Apotheker und Aertzebank (‘apoBank’) was founded in 1902 as a cooperative bank for the academic medical professions. As a focused specialist and niche player, the bank has a strong market position in the German healthcare sector; with over 100,000 members, more than 330,000 customers and a balance sheet total of more than 40 billion euro, apoBank is the largest primary cooperative bank in Germany.

apoBank provides a comprehensive range of financial services and is the market leader within its customers segment in the areas of lending business and payment services.


Table 211: Deutsche Apotheker und Aertzebank, select income statement items, €mm FY 2009 Net interest income 609 Provisions for loan losses 114 NII less provisions 494 Commissions & fee income 192 Other operating income 16 Non-interest expense 516 Operating profit (loss) -279 PBT -269 Taxes 14 Net profit (loss) -283 Source: Bloomberg

Table 212: Deutsche Apotheker und Aertzebank, select balance sheet items, €mm FY 2009 Loans to public 25,600 Total Assets 41,231 Deposits 16,984 Short-term borrowings 11,190 Other short-term borrowings 678 Long-term borrowing 10,503 Equity 1,621 Source: Bloomberg

Table 213: Deutsche Apotheker und Aertzebank, select financial metrics FY 2009 NIM 1.6 ROA -0.7 ROE -15.6 ROC -1.2 C:I 161.0 Core capital 6.2 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/-/- Issuer rating A+/A2/A+ Cover pool size (€) 3,142,160,000 Overcollateralisation (in %) 74..5 Property type (in %) Residential 98 Other commercial 2 Source: Investor report

103



Deutsche Bank Deutsche Bank is a global investment bank operating in 72 countries along three main business lines: Corporate & Investment Banking, Private Clients & Asset Management and Corporate Investments.

Deutsche Bank has a strong retail base in Europe, with Germany as its core market (where 49% of all branches are located and where it also is the largest bank by assets).


Table 215: Deutsche Bank, select income statement items, €mm FY 2009 Net interest income 12,459 Provisions for loan losses 2,630 NII less provisions 9,829 Commissions & fee income 11,377 Other operating income 131 Non-interest expense 23,095 Operating profit (loss) 4,948 PBT 5,202 Taxes 244 Net profit (loss) 4,973 Source: Bloomberg

Table 216: Deutsche Bank, select balance sheet items, €mm FY 2009 Real estate loans 58,673 Commercial loans 88,785 Consumer loans 85,675 Other loans 86,988 Loans to public 258,105 Total Assets 1,500,664 Deposits 344,220 Short-term borrowings 42,897 Other short-term borrowings 725,722 Long-term borrowing 142,359 Equity 37,969 Source: Bloomberg

Table 217: Deutsche Bank, select financial metrics FY 2009 NIM 0.7 ROA 0.3 ROE 14.8 ROC 1.7 C:I 73.1 Core Capital 12.6 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating A+/Aa3/AA- Cover pool size (€) 1,690,900,000 Overcollateralisation (in %) 62.0 Fixed rate loans (in %) 90.3 €-denominated loans (in %) 92.7 Property type (in %) Residential 31.9 Office 32.9 Retail 27.3 Industrial 5.0 Other 3.2 Geographical split (in %) Germany 91.5 UK 5.6 Switzerland 1.9 France 1.0 Source: Investor report

104



Deutsche Genossenshafts-Hypothekenbank (DG Hyp) DG HYp’s expertise lies in commercial real estate finance, with business originated via three channels: cooperative banking via partner banks, directly with domestic investors and developers and through participation in syndicates on international markets.

The bank is affiliated to DZ Bank Group and, outside its German core market, it is represented in the USA, the UK, France and Poland.


Table 219: DG Hyp, select income statement items, €mm FY 2009 Net interest income 164 Provisions for loan losses 125 NII less provisions 39 Commissions & fee income 30 Other operating income 14 Non-interest expense 142 Operating profit (loss) -261 PBT -127 Taxes -2 Net profit (loss) 0 Source: Bloomberg

Table 220: DG Hyp, select balance sheet items, €mm FY 2009 Other Loans 37,043 Loans to public 37,043 Total Assets 68,075 Deposits 16,016 Short-term borrowings 7,099 Other short-term borrowings 1,129 Long-term borrowing 42,086 Equity 1,653 Source: Bloomberg

Table 221: DG Hyp, select financial metrics FY 2009 NIM 0.2 ROA 0.0 ROE 0.0 ROC 0.0 Core capital 6.9 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/-/AAA Issuer rating A/-/A+ Cover pool size (€) 30,520,160,000 Over-collateralisation (in %) 9.03 Geographical split (in %) Germany 65 Spain 14 Italy 6 Austria 3 Portugal 3 Other 10 Borrower type (in %) Central Government 10 Regional authorities 36 Local authorities 31 Other 23 Source: Investor report

Table 223: Mortgage covered bond characteristics As at 30 Jun

2010 S/M/F Covered Bond rating AAA/-/AAA Issuer rating A/-/A+ Cover pool size (€) 16,228,390,0000 Over-collateralisation (in %) 26.04 Property type (in %) Residential 57 Office 21 Retail 9 Industrial 1 Other 12 Geographical split (in %) Germany 85 UK 4 France 4 USA 4 Other 3 Source: Investor report

105



Deutsche Hypo Hannover (Deutsche Hypothekenbank) Deutsche Hypo Hannover is a mortgage bank and as such it focuses on all aspects of financing and consultancy associated with real estate. In particular the bank specialises in large-scale commercial financing with professional real estate customers and the construction of residential buildings for investment purposes.

The bank also offers public-sector lending and capital market transactions with German and foreign market operator and is part of Nord/LB since 2008.


Table 224: Deutsche Hypo Hannover, select income statement items, €mm FY 2009 Net interest income 98 Provisions for loan losses 91 NII less provisions 7 Commissions & fee income 14 Other operating income 1 Non-interest expense 55 Operating profit (loss) 13 PBT 13 Taxes 3 Net profit (loss) 10 Source: Bloomberg

Table 225: Deutsche Hypo Hannover, select balance sheet items, €mm FY 2009 Loans to public 16,672 Total Assets 35,358 Deposits 10,401 Short-term borrowings 6,660 Long-term borrowing 16,702 Equity 416 Source: Bloomberg

Table 226: Deutsche Hypo Hannover, select financial metrics FY 2009 NIM 0.3 ROA 0.0 ROE 2.5 ROC 0.0 C:I 34.5 Core capital 6.8 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating -/A1/- Cover pool size (€) 16,010,000,000 Overcollateralisation (€) 970,000,000 Borrower type (in %) German Central Government 3 German Federal States 30 Municipalities, non-profit organizations 6 Foreign loans 42 Public sector banks 18 Public sector companies 2 Ratings split (in %) AAA 27 AA 59 A 13 BBB 1 Source: Investor report


2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating -/A1/- Cover pool size (€) 6,897,000,000 Over-collateralisation (€) 1,339,000,000 Geographical split (in %) Germany 60 USA 14 Other Europe 26 Property type (in %) Residential 27 Office 30 Retail 29 Hotel 8 Other 6 Source: Investor report

106



Deutsche Postbank Deutsche Postbank Group is one of Germany’s major financial services providers. Its focus is on retail business with private customers; it is also active in the corporate banking sector, while its transaction banking division performs back office services for other financial services providers.

In 2006 Postbank acquired the 850 largest branches from Deutsche Post AG and created a mobile sales team of more than 4,000 consultants through the acquisition of BHW. It sells its products through a networked multi-channel platform via the Internet, by telephone, in branches and via mobile consultants.


Table 229: Deutsche Postbank, select income statement items, €mm FY 2009 Net interest income 2,401 Provisions for loan losses 678 NII less provisions 1,723 Commissions & fee income 1,614 Other operating income 187 Non-interest expense 3,280 Operating profit (loss) -407 PBT -398 Taxes -475 Net profit (loss) 76 Source: Bloomberg

Table 230: Deutsche Postbank, select balance sheet items, €mm FY 2009 Real estate loans 56,561 Loans to public 109,402 Total Assets 226,609 Deposits 131,988 Short-term borrowings 37,031 Other short-term borrowings 26,414 Long-term borrowing 24,516 Equity 5,251 Source: Bloomberg

Table 231: Deutsche Postbank, select financial metrics FY 2009 NIM 1.1 ROA 0.0 ROE 1.5 ROC 0.1 C:I 91.7 Core capital 7.6 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating A-/A1/A+ Cover pool size (€) 2,570,000,000 Over-collateralisation (in %) 31.9 Geographical split (in %) Germany 57 Belgium 8 France 8 Italy 4 Austria 8 Netherlands 12 Spain 4 Borrower type (in %) Central Government 43 Regional authorities 16 Other 41 Source: Investor report


2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating A-/A1/A+ Cover pool size (€) 7,478,800,000 Over-collateralisation (in %) 24 Property type (in %): Residential 100.0 Geographical split (in %): Germany 100.0 Source: Investor report

107



Deutsche Schiffsbank Deutsche Schiffsbank is one of the leading ship finance banks in the world with joint headquarters in Bremen and Hamburg. The shareholders are Commerzbank and Bayerische Hypo- und Vereinsbank, which indirectly hold 92% and 8% respectively.

The bank offers maritime and public finance services and uses Pfandbriefe to fund these activities. The ship loans are mostly granted in US dollars.


Table 234: Deutsche Schiffsbank, select income statement items, €mm FY 2009 Net interest income 150 Commissions & fee income 11 Other operating income 5 Non-interest expense 31 Operating profit (loss) 23 PBT 22 Taxes 22 Net profit (loss) 0.3 Source: Deutsche Schiffsbank 2009 Annual Report

Table 235: Deutsche Schiffsbank, select balance sheet items, €mm FY 2009 Loans to public 12,467 Total Assets 16,311 Short-term borrowings 3,927 Long-term borrowing 7,445 Equity 950 Source: Deutsche Schiffsbank 2009 Annual Report

Table 236: Deutsche Schiffsbank, select financial metrics FY 2009 ROE 4.1 C:I 19.4 Core capital 9.2 Source: Deutsche Schiffsbank 2009 Annual Report



2010 S/M/F Covered Bond rating n/a Issuer rating -/A2/- Cover pool size (€) 1,632,000,000 Overcollateralisation (€) 210,100,000 Geographical split (in %) Germany 79 Greece 4 Italy 4 Austria 4 Ireland 2 Poland 2 Other 4 Borrower type (in %) Central Government 13 Regional authorities 43 Other 44 Source: Investor report

Table 238: Ship covered bond characteristics As at 31 Mar

2010 S/M/F Covered Bond rating n/a Issuer rating -/A2/- Cover pool size (€) 5,872,500,000 Overcollateralisation (€) 938,600,000 Geographical split (in %) Germany 42 Marshall Islands 10 Greece 9 Liberia 6 Malta 5 Cyprus 5 Other 4 Source: Investor report

108



Dexia Kommunalbank Deutschland Dexia Kommunalbank Deutschland, part of the Dexia Group, focuses predominantly on the public finance line of business. It provides a wide range of products and services in the management of PPP/PFI and project finance as well as export finance, particularly to infrastructure/transportation, energy and telecommunications sectors. The German operations form part of Dexia Credit Local.


Table 239: Dexia Kommunalbank, select income statement items, €mm FY 2009 Net interest income 45 Commissions & fee income 2 Other operating income 0 Non-interest expense 22 Operating profit (loss) 5 PBT 1 Taxes 0 Net profit (loss) 1 Source: Bloomberg

Table 240: Dexia Kommunalbank, select balance sheet items, €mm FY 2009 Consumer loans 20,299 Other loans 556 Loans to public 20,855 Total Assets 47,291 Deposits 18,915 Short-term borrowings 7,828 Other short-term borrowings 309 Long-term borrowing 19,895 Equity 344 Source: Bloomberg

Table 241: Dexia Kommunalbank, select financial metrics FY 2009 C:I 78.0 Core capital 12.3 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/-/- Issuer rating (Dexia CL) A/A1/A+ Cover pool size (€) 37,240,980,000 Over-collateralisation (€) 1,512,560,000 Geographical split (in %) Germany 72 Italy 8 Austria 5 Spain 3 Greece 2 Other 10 Borrowers type (in %) Regional Authorities 43 Local Authorities 23 Central Government 9 Other 25 Source: Investor report

109



Duesseldorfer Hypothekenbank DHB’s main line of business is public-sector lending, although property finance has gradually become the second pillar of the institution’s business model, accounting for almost 10% of the aggregate lending volume and roughly 20% of the bank’s operating income. Loans to central, regional and local authorities and to public-sector banks dominate the portfolio.

The bank’s operations are for the most part funded through public-sector Pfandbriefe. DHB remains predominantly owned (94%) by the Bundesverband deutscher Einlagensicherungsfonds (Association of German Bank Deposit Protection Funds)


Table 243: Duesseldorfer Hypothekenbank, select income statement items, €mm FY 2009 Net interest income 55 Provisions for loan losses 9 NII less provisions 46 Commissions & fee income 2 Other operating income 6 Non-interest expense 49 Operating profit (loss) 2 PBT 2 Taxes 0 Net profit (loss) 2 Source: Bloomberg

Table 244: Duesseldorfer Hypothekenbank, select balance sheet items, €mm FY 2009 Loans to public 3,635 Total Assets 24,170 Deposits 7,358 Short-term borrowings 8,384 Long-term borrowing 8,094 Equity 307 Source: Bloomberg

Table 245: Duesseldorfer Hypothekenbank, select financial metrics FY 2009 NIM 0.2 ROA 0.0 ROE 0.5 ROC 0.0 C:I 75.1 Core capital 7.0 Source: Bloomberg



2010 S/M/F Covered Bond rating -/-/AAA Issuer rating -/-/BBB- Cover pool size (€) 8,739,000,000 Over-collateralisation (€) 632,000,000 Ratings split (in %) AAA 34 AA 27 A 24 BBB 4 Below BBB and NR 11 Geographical split (in %) Germany 56 Austria 16 Spain 7 Italy 3 Portugal 3 Other 15 Borrower type (in %) Central Government 12 Regional authorities 34 Local authorities 3 Other 51 Source: Investor report


2010 S/M/F Covered Bond rating n/a Issuer rating -/-/BBB- Cover pool size (€) 1,026,000,000 Over-collateralisation (€) 212,000,000 Property type (in %) Residential 13 Office 64 Retail 17 Other 7 Geographical split (in %) Germany 57 USA 25 Netherlands 5 France 4 UK 4 Switzerland 3 Source: Investor report

110



Eurohypo Eurohypo AG is a leading international specialist bank for real estate and public finance. The bank currently forms part of the Commerzbank Group, but is expected to be spun out of the institution by 2014 as a condition for approval of State Aid.

The real estate division of the company includes commercial real estate financing in Germany as well as numerous international markets. The public finance division offers conventional public sector lending, financing and consulting to PPP projects and Pfandbrief refinancing and cover pool management.


Table 248: Eurohypo Group, select income statement items, €mm FY 2009 Net interest income 1,245 Provisions for loan losses 1,174 NII less provisions 71 Commissions & fee income 180 Other operating income 77 Non-interest expense 537 Operating profit (loss) -369 PBT -515 Taxes 387 Net profit (loss) -902 Source: Bloomberg

Table 249: Eurohypo Group, select balance sheet items, €mm FY 2009 Loans to public 129,695 Total Assets 256,061 Deposits 34,630 Short-term borrowings 96,696 Long-term borrowing 96,052 Equity 3,952 Source: Bloomberg

Table 250: Eurohypo Group, select financial metrics FY 2009 NIM 0.5 ROA -0.3 ROE -22.6 ROC -0.4 C:I 38.6 Core capital 8.6 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating A-/A1/A Cover pool size (€) 64,505,000,000 Over-collateralisation (€) 4,356,000,000 Geographical split (in %) Germany 72 Austria 6 USA 4 Spain 3 Italy 3 Other 12 Borrower type (in %) Central Government 14 Regional authorities 75 Local authorities 9 Other 2 Source: Investor report


2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating A-/A1/A Cover pool size (€) 51,734,000,000 Over-collateralisation (€) 7,743,000,000 Property type (in %) Residential 42 Office 25 Retail 21 Industrial 5 Other 8 Geographical split (in %) Germany 72 Spain 5 France 4 UK 4 Other 15 Source: Investor report

111



HSH Nordbank HSH Nordbank is one of the major providers of real estate finance in Germany but also offers private banking services and financing to the regionally dominant industries of shipping, transportation and energy.

The institution is the result of the 2003 merger between Hamburgische Landesbank and Landesbank Schleswig-Holstein (LB Kiel). Ownership is currently (at least until 2013) centred around the City State of Hamburg and the State of Schleswig-Holstein, which own a combined 85.5% of the institution.


Table 253: HSH Nordbank, select income statement items, €mm FY 2009 Net interest income 2,121 Provisions for loan losses 2,794 NII less provisions -673 Commissions & fee income 303 Other operating income -22 Non-interest expense 870 Operating profit (loss) -654 PBT -1,102 Taxes -423 Net profit (loss) -670 Source: Bloomberg

Table 254: HSH Nordbank, select balance sheet items, €mm FY 2009 Commercial loans 98,167 Consumer loans 2,581 Other loans 9,809 Loans to public 106,209 Total Assets 174,533 Deposits 49,803 Short-term borrowings 38,591 Other short-term borrowings 19,550 Long-term borrowing 62,005 Equity 4,491 Source: Bloomberg

Table 255: HSH Nordbank, select financial metrics FY 2009 NIM 1.1 ROA -0.4 ROE -20.9 ROC -0.6 C:I 26.7 Core capital 9.5 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating -/A3/A- Cover pool size (€) 9,148,300,000 Over-collateralisation (in %) 25.2 Geographical split (in %) Germany 77 Austria 10 Other 13 Borrower type (in %) Central Government 11 Regional authorities 63 Local authorities 8 Other 17 Source: Investor report

Table 257: Ship covered bond characteristics As at 30 Jun

2010 S/M/F Covered Bond rating -/A2/- Issuer rating -/A3/A- Cover pool size (€) 3,282,500,000 Over-collateralisation (in %) 31.0 Geographical split (in %) Germany 77 Panama 5 Liberia 5 Other 13 Source: Investor report


2010 S/M/F Covered Bond rating n/a Issuer rating -/A3/A- Cover pool size (€) 5,575,200,000 Over-collateralisation (in %) 11.0 Property type (in %) Residential 30 Office 41 Retail 13 Other 16 Geographical split (in %) Germany 63 Netherlands 16 France 15 Other 6 Source: Investor report

112



Landesbank Baden Württemberg (LBBW)

LBBW is a regionally-linked universal bank and together with its regional retail banks (Baden-Württembergische Bank, Rheinland-Pfalz Bank, and Sachsen Bank), it offers a wide spectrum of financial products throughout Germany. BW-Bank acts as a savings bank for LBBW in the area of Stuttgart, the state capital of Baden-Württemberg.

LBBW is the largest bank in the southwest of Germany, ranking among the five largest German banks and among the 50 largest credit institutions worldwide. The largest three shareholders remain the local savings banks (40.5%) along with the State of Baden-Württemberg (19.6%) and the City of Stuttgart (18.9%).


Table 259: LBBW, select income statement items, €mm FY 2009 Net interest income 2,778 Provisions for loan losses 1,527 NII less provisions 1,251 Commissions & fee income 964 Other operating income 386 Non-interest expense 2,900 Operating profit (loss) -203 PBT -1,214 Taxes 268 Net profit (loss) -1,483 Source: Bloomberg

Table 260: LBBW, select balance sheet items, €mm FY 2009 Loans to public 145,729 Total Assets 411,694 Deposits 105,212 Short-term borrowings 109,352 Long-term borrowing 141,280 Equity 10,506 Source: Bloomberg

Table 261: LBBW, select financial metrics FY 2009 ROA 0.7 ROE -0.3 ROC -17.9 C:I -0.5 Core capital 66.2 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating -/Aa2/A+ Cover pool size (€) 64,777,000,000 Over-collateralisation (€) 10,012,000,000 Geographical split (in %) Germany 96 Other 4 Borrower type (in %) Central Government 4 Regional authorities 14 Local authorities 10 Other 72 Source: Investor report


2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating -/Aa2/A+ Cover pool size (€) 9,075,000,000 Over-collateralisation (€) 4,713,000,000 Property type (in %) Residential 56 Office 14 Retail 8 Industrial 1 Other 22 Geographical split (in %) Germany 97 Source: Investor report

113



Landesbank Berlin Landesbank Berlin offers retail and regional corporate banking, capital markets and real estate financing.

Landesbank Berlin -Girozentrale- was founded as a bank subject to public law on 1 October 1990. At the same time, the city's savings banks that had been separated into east and west were transferred to Landesbank Berlin and since then have formed the joint Berliner Sparkasse. As at 1 January 2006, Landesbank was transformed into a stock corporation in accordance with the Berlin Savings Bank Act of summer 2005. At the same time, the State of Berlin made Landesbank Berlin AG the parent company of the public-law Berliner Sparkasse. Berliner Sparkasse is now operated as a branch of Landesbank Berlin AG.


Table 264: Landesbank Berlin, select income statement items, €mm FY 2009 Net interest income 861 Provisions for loan losses 185 NII less provisions 676 Commissions & fee income 395 Other operating income 91 Non-interest expense 1,118 Operating profit (loss) 410 PBT 339 Taxes 67 Net profit (loss) 257 Source: Bloomberg

Table 265: Landesbank Berlin, select balance sheet items, €mm FY 2009 Real estate loans 17,269 Loans to public 47,476 Total Assets 143,835 Deposits 35,129 Short-term borrowings 49,873 Other short-term borrowings 33,408 Long-term borrowing 22,698 Equity 2,712 Source: Bloomberg

Table 266: Landesbank Berlin, select financial metrics FY 2009 NIM 0.6 ROA 0.2 ROE 11.5 ROC 0.3 C:I 62.3 Core capital 14.5 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating -/A1/AA- Cover pool size (€) 5,044,361,780 Over-collateralisation (€) 1,697,337,376 Geographical split (in %) Germany 95 Borrower type (in %) Central Government 9 Regional authorities 43 Local authorities 4 Other 44 Source: Investor report


2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating S/M/F -/A1/AA- Cover pool size (€) 3,033,233,229 Over-collateralisation (€) 609,091,170 Geographical split (in %) Germany 95 France 5 Property type (in %) Residential 38 Office 30 Retail 15 Industrial 7 Other 9 Source: Investor report

114



Landesbank Hessen-Thueringen The Helaba Group is one of Germany’s leading Landesbanks, with a strong doemstic and international foothold. The bank is owned by the savings banks (85%) and the states of Hesse (10%) and Thuringia (5%).

The bank is focused on three areas including Multinational Corporate Business servicng corporates, banks and institutional investors; Private Customers & SME Business division; and Public Development & Infrastructure business.


Table 269: Landebank Hessen-Thueringen, select income statement items, €mm FY 2009 Net interest income 1,029 Provisions for loan losses 487 NII less provisions 542 Commissions & fee income 349 Other operating income 234 Non-interest expense 1,171 Operating profit (loss) 323 PBT 343 Taxes 80 Net profit (loss) 324 Source: Bloomberg

Table 270: Landebank Hessen-Thueringen, select balance sheet items, €mm FY 2009 Loans to public 86,280 Total Assets 169,901 Deposits 41,891 Short-term borrowings 33,214 Other short-term borrowings Long-term borrowing 43,030 Equity 4,898 Source: Bloomberg

Table 271: Landebank Hessen-Thueringen, select financial metrics FY 2009 NIM 0.6 ROA 0.2 ROE 6.8 ROC 0.4 C:I 56.4 Core capital 8.8 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating A/Aa2/A+ Cover pool size (€) 20,549,000,000 Over-collateralisation (€) 5,048,000,000 Borrower type (in %) Central Government 4 Regional authorities 15 Local authorities 35 Other 46 Geographical split (in %) Germany 93 Spain 7 Source: Investor report


2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating A/Aa2/A+ Cover pool size (€) 8,910,000,000 Over-collateralisation (€) 3,702,000,000 Geographical split (in %) Germany 95 Sweden 3 Other 2 Property type (in %) Residential 19 Office 50 Retail 25 Industrial 2 Other 4 Source: Investor report

115



Landesbank Saar Landesbank Saar (‘SaarLB’) is the largest financial institution in the Saarland region and has positioned itself as the leading Franco-German SME bank. The Bank’s core markets are the German state of Saarland and the neighbouring regions of France, particularly the country’s northeast.

SaarLB’s activities are geared toward small and medium-sized enterprises, high net worth individuals and customers seeking commercial real estate financing. SaarLB also provides financing for mainly regional public-sector budgets and for renewable energy projects. Owners include BayernLB, Saarland and the Sparkassenverband Saar.


Table 274: Landesbank Saar, select income statement items, €mm FY 2009 Net interest income 126 Provisions for loan losses 73 NII less provisions 53 Commissions & fee income 25 Non-interest expense 90 Operating profit (loss) 19 PBT 17 Taxes 6 Net profit (loss) 11 Source: Bloomberg

Table 275: Landesbank Saar, select balance sheet items, €mm FY 2009 Real estate loans 2,934 Loans to public 7,039 Total Assets 18,670 Deposits 4,806 Short-term borrowings 4,989 Other short-term borrowings 551 Long-term borrowing 7,874 Equity 371 Source: Bloomberg

Table 276: Landesbank Saar, select financial metrics FY 2009 NIM 0.7 ROA 0.1 ROE 3.3 ROC 0.1 C:I 43.4 Core capital 9.7 Source: Bloomberg



2010 S/M/F Covered Bond rating n/a Issuer rating -/A1/A+ Cover pool size (€) 2,614,000,000 Over-collateralisation (in %) 47.7 Borrower type (in %) Central Government 64 Regional authorities 18 Local authorities 13 Other 5 Source: Investor report


2010 S/M/F Covered Bond rating n/a Issuer rating -/A1/A+ Cover pool size (€) 272,000,000 Over-collateralisation (in %) 59.1 Geographical split (in %) Germany 36 France 64 Property type (in %) Residential 13 Office 43 Retail 16 Industrial 1 Other 23 Source: Investor report

116



Muenchener Hypothekenbank Münchener Hypothekenbank is active in the public sector lending business as well as in mortgage lending. As an independent mortgage bank – no other large bank holds a majority share in MünchenerHyp – the bank’s owners primarily consist of cooperative banks, cooperative central banks and individual members/shareholders, most of whom are customers of the bank itself.

The bank operates in the private residential lending business via the cooperative Financial Services Network, the Volksbanken and Raiffeisenbanken, and their own regional offices, which serve as lending partners to local banks within the FinanzVerbund.


Table 279: Muenchener Hypothekenbank, select income statement items, €mm FY 2009 Net interest income 133 Provisions for loan losses 24 NII less provisions 108 Commissions & fee income 9 Other operating income 3 Non-interest expense 100 Operating profit (loss) 29 PBT 13 Taxes 2 Net profit (loss) 11 Source: Bloomberg

Table 280: Muenchener Hypothekenbank, select balance sheet items, €mm FY 2009 Loans to public 22,678 Total Assets 35,733 Deposits 9,282 Short-term borrowings 8,961 Other short-term borrowings 99 Long-term borrowing 14,785 Equity 772 Source: Bloomberg

Table 281: Muenchener Hypothekenbank, select financial metrics FY 2009 NIM 0.4 ROA 0.0 ROE 1.5 ROC 0.0 C:I 53.7 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating -/A1/- Cover pool size (€) 11,185,781,000 Overcollateralisation (€) 557,292,000 Geographical split (in %) Germany 81 Austria 3 Switzerland 3 Other 13 Borrower type (in %) Central Government 11 Regional authorities 47 Local authorities 15 Other 27 Source: Investor report


2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating -/A1/- Cover pool size (€) 16,060,345,000 Overcollateralisation (€) 2,517,074,000 Geographical split (in %) Germany 76 USA 13 Switzerland 6 Other 5 Property type (in %) Residential 71 Office 19 Retail 5 Industrial 1 Other 4 Source: Investor report

117



Norddeutsche Landesbank NORD/LB is the leading universal bank in North Germany, where it is the Landesbank for the federal states Lower Saxony and Saxony Anhalt. It also acts as the central bank for 62 savings banks in Lower Saxony, Saxony-Anhalt and Mecklenburg-Western Pomerania.

It offers a wide range of financial services to its private, corporate and institutional clients and to the public sector. The main areas of specialisation of NORD/LB are investment, agricultural and real estate banking, corporate finance, ship and aircraft financing and private banking.


Table 284 Norddeutsche Landesbank, select income statement items, €mm FY 2009 Net interest income 1,366 Provisions for loan losses 1,042 NII less provisions 324 Commissions & fee income 277 Other operating income 936 Non-interest expense 1,878 Operating profit (loss) 108 PBT -92 Taxes 49 Net profit (loss) -152 Source: Bloomberg

Table 285: Norddeutsche Landesbank, select balance sheet items, €mm FY 2009 Loans to public 110,294 Total Assets 238,688 Deposits 61,306 Short-term borrowings 62,152 Long-term borrowing 101,257 Equity 5,842 Source: Bloomberg

Table 286: Norddeutsche Landesbank, select financial metrics FY 2009 NIM 0.6 ROA -0.1 ROE -2.7 ROC -0.1 C:I 60.7 Core capital 8.7 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating A-/Aa2/A Cover pool size (€) 24,047,000,000 Overcollateralisation (in %) 19 Geographical split (in %) Germany 96 Borrower type (in %) Central Government 2 Regional authorities 22 Local authorities 17 Other 59 Source: Investor report


2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating A-/Aa2/A Cover pool size (€) 2,699,000,000 Overcollateralisation (in %) 1677.4 Geographical split (in %) Germany 84 Luxembourg 5 Netherlands 4 Other 7 Property type (in %) Residential 40 Office 36 Other 24 Source: Investor report

Table 289: Ship covered bond characteristics As at 30 June

2010 S/M/F Covered Bond rating n/a Issuer rating A-/Aa2/A Cover pool size (€) 844,000,000 Over-collateralisation (in %) 77.4 Geographical split (in %) Germany 77 Cyprus 23 Source: Investor report

118



pbb (Deutsche Pfandbriefbank) pbb or Deutsche Pfandbriefbank is part of the larger HRE Group, an institution which is currently in the midst of realigning itself as a specialist bank in real estate and public finance. The slimmed down group will focus on Germany in particular, and Europe, more broadly. Deutsche Pfandbriefbank AG was formed in mid-2009 by the merger of Hypo Real Estate Bank AG and DEPFA Deutsche Pfandbriefbank AG. The institution is currently wholly owned by the German government, through the SoFFin, with the expectation that it will be returned to the private sector by the middle of the decade.

The bank offers real estate finance services to professional real estate operators and SME customers, with a particular focus on Germany, and public sector finance with a European focus.


Table 290: HRE Group, select income statement items, €mm FY 2009 Net interest income 1,396 Provisions for loan losses 2,091 NII less provisions -695 Commissions & fee income 137 Other operating income 14 Non-interest expense 1,397 Operating profit (loss) -2,213 PBT -2,221 Taxes 15 Net profit (loss) -2,236 Source: Bloomberg

Table 291: HRE Group, select balance sheet items, €mm FY 2009 Loans to public 194,446 Total Assets 359,676 Deposits 13,259 Short-term borrowings 185,090 Long-term borrowing 112,895 Equity 3,566 Source: Bloomberg

Table 292: HRE Group, select financial metrics FY 2009 NIM 0.4 ROA -0.6 ROC -0.7 C:I 124.6 Core capital 9.4 Source: Bloomberg



2010 S/M/F Covered Bond rating AA+/Aaa/AAA Issuer rating BBB/A3/A- Cover pool size (€) 54,223,500,000 Over-collateralisation (€) 5,276,100,000 Geographical split (in %) Germany 42.3 Austria 12.8 Italy 11.1 France 6.4 Greece 6.1 Spain 4.8 Portugal 3.7 Other 12.8 Borrower type (in %) Central Government 26.4 Regional authorities 35.1 Local authorities 3.7 Other 34.8 Source: Investor report


2010 S/M/F Covered Bond rating AA+/Aa3/AA+ Issuer rating BBB/A3/A- Cover pool size (€) 24,662,800,000 Over-collateralisation (€) 4,117,000,000 Property type (in %) Residential 27.0 Office 37.4 Retail 22.5 Industrial 1.6 Mixed commercial 9.7 Other 1.7 Geographical split (in %) Germany 58.7 UK 9.8 France 6.6 US 6.8 Source: Investor report

119



SEB AG SEB AG became the German subsidiary of the Swedish bank SEB in 2000. The core businesses are banking and financial and insurance services for companies, institutions and real estate clients, as well as for retail customers.

The bank has 174 branches in Germany and around 1mm customers. Santander, the Spanish banking group, is currently in the process of acquiring the retail network from SEB. The existing covered bonds will however remain an obligation of SEB AG, which will retain its merchant banking and wealth management operations.


Table 295: SEB Bank, select income statement items, €mm FY 2009 Net interest income 360 Commissions & fee income 257 Other operating income 9 Non-interest expense 504 Operating profit (loss) 89 PBT -16 Taxes -1 Net profit (loss) -89 Source: Bloomberg

Table 296: SEB Bank, select balance sheet items, €mm FY 2009 Consumer estate loans 26.393 Loans to public 26,393 Total Assets 52,743 Deposits 22,057 Short-term borrowings 16,837 Other short-term borrowings 929 Long-term borrowing 10,536 Equity 2,385 Source: Bloomberg

Table 297: SEB Bank, select financial metrics FY 2009 NIM 0.7 ROA -0.2 ROE -3.7 ROC -0.3 C:I 82.6 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aa1/- Issuer rating A-/Baa1/- Cover pool size (€) 7,814,217,000 Over-collateralisation (€) 518,366,000 Geographical split (in %) Germany 86 Austria 7 Other 7 Borrower type (in %) Central Government 4 Regional authorities 39 Local authorities 2 Other 55 Collateral type (in %) Loans 46 Bonds 54 Source: Investor report


2010 S/M/F Covered Bond rating -/Aa1/- Issuer rating A-/Baa1/- Cover pool size (€) 5,371,231,000 Over-collateralisation (€) 1,285,630,000 Geographical split (in %) Germany 100 Property type (in %) Residential 72 Office 9 Retail 13 Other 6 Source: Investor report

120



Unicredit Bank AG (HypoVereinsbank)

HypoVereinsbank (HVB) is a member of UniCredit Group, which occupies the leading position in the economic area comprising Italy, Germany, Austria, and central and eastern Europe, with over 10,000 branches in 22 countries.

HVB operates predominantly in Germany, where it offers retail and corporate banking services, as well as real estate financing, private banking and corporate and investment banking services.


Table 300: HypoVereinsbank, select income statement items, €mm FY 2009 Net interest income 4,521 Provisions for loan losses 1,601 NII less provisions 2,920 Commissions & fee income 2,160 Other operating income 399 Non-interest expense 4,693 Operating profit (loss) 1,580 PBT 1,266 Taxes 382 Net profit (loss) 819 Source: Bloomberg

Table 301: HypoVereinsbank, select balance sheet items, €mm FY 2009 Real estate loans 56,012 Loans to public 145,919 Total Assets 363,420 Deposits 96,490 Short-term borrowings 50,704 Other short-term borrowings 130,127 Long-term borrowing 61,286 Equity 23,638 Source: Bloomberg

Table 302: HypoVereinsbank, select financial metrics FY 2009 ROA 0.2 ROE 3.6 ROC 0.6 C:I 53.9 Core capital 17.8 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating A/A1/A+ Cover pool size (€) 9,917,800,000 Over-collateralisation (€) 3,020,400,000 Geographical split (in %) Germany 96 Austria 2 Other 2 Borrower type (in %) Central Government 4 Regional authorities 30 Local authorities 45 Other 21 Source: Investor report


2010 S/M/F Covered Bond rating -/Aa1/AAA Issuer rating A/A1/A+ Cover pool size (€) 33,,847,200,000 Over-collateralisation (€) 4,366,800,000 Property type (in %) Residential 73 Office 12 Retail 9 Industrial 2 Other 4 Geographical split (in %) Germany 100 Source: Investor report

121



Westdeutsche Immobilienbank Westdeutsche Immobilien Bank AG (‘WestImmo’) is a 100% subsidiary of WestLB AG and the centre of competence for all domestic, foreign real estate property financings and activities for the group. Customers include institutional investors, global developers, property companies, real estate corporates and medium sized enterprises.

In addition to financing at property, project or portfolio level, the bank also offer customers a spectrum of additional products such as real estate joint ventures, syndications and interest and exchange derivatives.


Table 305: Westdeutsche Immobilienbank, select income statement items, €mm FY 2009 Net interest income 199 Provisions for loan losses 66 NII less provisions 132 Commissions & fee income 40 Other operating income 4 Non-interest expense 95 Operating profit (loss) 77 PBT 75 Taxes 3 Net profit (loss) 83 Source: Westdeutsche Immobilienbank Annual Report 2009

Table 306: Westdeutsche Immobilienbank, select balance sheet items, €mm FY 2009 Loans to public 16,732 Total Assets 26,889 Deposits 6,864 Short-term borrowings 6,360 Long-term borrowing 8,190 Equity 906 Source: Westdeutsche Immobilienbank Annual Report 2009

Table 307: Westdeutsche Immobilienbank, select financial metrics FY 2009 ROE 7.9 C:I 37.7 Core capital 8.2 Source: Westdeutsche Immobilienbank Annual Report 2009



2010 S/M/F Covered Bond rating AAA/- /- Issuer rating BBB+/-/- Cover pool size (€) 2,461,300,000 Over-collateralisation (€) 255,600,000 Geographical split (in %) Germany 97 Borrower type (in %) Central Government 3 Regional authorities 22 Local authorities 45 Other 30 Source: Investor report


2010 S/M/F Covered Bond rating AAA/- /- Issuer rating BBB+/-/- Cover pool size (€) 11,088,000,000 Over-collateralisation (€) 2,059,500,000 Geographical split (in %) Germany 55 USA 14 UK 12 Other 20 Property type (in %) Residential 33 Office 34 Retail 16 Other 17 Source: Investor report

122



WestLB WestLB AG is a commercial bank with roots in North Rhine-Westphalia, Germany´s largest federal state. It is one of Germany´s leading financial services providers and the central institution for the savings banks in North Rhine-Westphalia and Brandenburg.

WestLB works in close partnership with the savings banks, offering a wide range of products and services but focusing on lending, structured finance, capital market, asset management, transaction services and real estate finance.

In 2008, WestLB’s owners (NRW Bank, local savings bank association and the States) approved a risk shield for the Bank. The European authorities have approved this state aid, on condition that the institution must reduce its balance sheet and its RWA by 50% respectively.


Table 310: WestLB, select income statement items, €mm FY 2009 Net interest income 1,919 Provisions for loan losses 796 NII less provisions 1,123 Commissions & fee income 512 Other operating income 184 Non-interest expense 1,663 Operating profit (loss) 24 PBT -503 Taxes 28 Net profit (loss) -531 Source: Bloomberg

Table 311: WestLB, select balance sheet items, €mm FY 2009 Real estate loans 7,433 Commercial loans 93,078 Consumer loans 3,819 Loans to public 95,230 Total Assets 242,311 Deposits 27,643 Short-term borrowings 36,213 Other short-term borrowings 53,697 Long-term borrowing 84,644 Equity 3,733 Source: Bloomberg

Table 312: WestLB, select financial metrics FY 2009 NIM 0.9 ROA -0.2 ROE -14.1 ROC -0.4 C:I 63.3 Core capital 8.2 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/- Issuer rating BBB+/A3/A- Cover pool size (€) 11,257,115,000 Over-collateralisation (€) 1,134,144,000 Geographical split (in %) Germany 82 Switzerland 5 Austria 3 Spain 3 Other 7 Borrower type (in %) Central Government 8 Regional authorities 37 Local authorities 44 Other 11 Ratings split (in %) AAA 43 AA 53 A 3 Below BBB and NR 1 Source: Investor report

123



WL Bank As a Pfandbrief bank, WL Bank focuses on public-sector and real estate lending, both for commercial and residential use.

The bank is a member of the German cooperative financial system and is a partner for the commercial and agricultural credit cooperatives.


Table 314: WL Bank, select income statement items, €mm FY 2009 Net interest income 106 Commissions & fee income 1 Other operating income 3 Non-interest expense 59 Operating profit (loss) 51 PBT 51 Taxes 25 Net profit (loss) 26 Source: Bloomberg

Table 315: WL Bank, select balance sheet items, €mm FY 2009 Consumer loans 13,678 Other loans 10,152 Loans to public 23,830 Total Assets 43,380 Deposits 14,344 Short-term borrowings 6,611 Other short-term borrowings 166 Long-term borrowing 21,840 Equity 393 Source: Bloomberg

Table 316: WL Bank, select financial metrics FY 2009 NIM 0.3 ROA 0.1 ROE 7.1 ROC 0.1 C:I 44.1 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/-/- Issuer rating A+/-/A+ Cover pool size (€) 26,470,500,000 Over-collateralisation (€) 2,488,700,000 Borrower type (in %) Central Government 15 Regional authorities 47 Local authorities 27 Other 11 Geographical split (in %) Germany 82 Spain 4 Austria 4 Other 10 Source: Investor report


2010 S/M/F Covered Bond rating AAA/-/- Issuer rating A+/-/A+ Cover pool size (€) 9,833,000,000 Over-collateralisation (€) 1,309,500,000 Property type (in %) Residential 88 Office 5 Retail 5 Other 2 Source: Investor report

124



125



Gre

ek c

over

ed b

onds

126



Greek Covered Bonds Legislative snapshot We set out below in Table 319 a snapshot of key covered bond attributed in Greece.

Table 319: Covered bond overview Attribute Commentary Legislative Framework Article 91 Law 3601/2007 and Act 2598/2.11.2007 of the Bank of Greece Structure of Issuer Bonds can be issued either directly off the balance sheet of the lender (‘direct

issuance’) or via an SPE (‘indirect issuance’ can be undertaken in two forms, with either the credit institution guaranteeing bonds issued the SPE, or vice versa)

Supervision Bank of Greece Cover assets Eligible mortgage collateral includes domestic residential mortgages (max 80% LTV),

domestic commercial mortgages (max 60% LTV) and ship loans (max 70% LTV until end of 2010). Whereas residential and commercial loans can be included in the cover pool above the LTV thresholds (with subsequent scaling), ship loans can only be included if they are under the LTV threshold. Pools can also include exposures to public sector entities or credit institutions. Substitute collateral can also be included in the pool to meet over-collateralisation requirements

Valuation Individual market values ALM matching Nominal and present value (including yield curve shift) cover required, with liabilities

capped at 95% of assets on a nominal basis. 12 month interest coverage test also required. Natural matching preferred but derivatives allowed to hedge risk

Over-collateralisation Covered bonds capped at 95% of assets on a nominal basis Bankruptcy remoteness Covered bond holders protected by preferential claim by law, pledge of assets to an

SPE and specific covered pool administration. No automatic acceleration on issuer insolvency




127



Greece macro background

Figure 64: Greek real GDP growth, y-on-y, %

-4

-2

0

2

4

6

8

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 65: Greek unemployment level, %

02468

101214

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 66: Greek CPI and base rate, %

0

1

2

3

4

5

6

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 67: Greek consumer confidence, balance of survey

-80-70-60-50-40-30-20-10

0

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Cons. Confidence

Source: Bloomberg

Figure 68: Greek house price growth, %

-10%-5%0%5%

10%15%20%25%

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

House price grow th (Urban areas) House price grow th (Athens)

Source: Bank of Greece

Figure 69: Greek newly built properties, #

0

1000

2000

3000

4000

5000

6000

Jun-

00

Jun-

01

Jun-

02

Jun-

03

Jun-

04

Jun-

05

Jun-

06

Jun-

07

Jun-

08

Jun-

09

New ly built properties

Source: Bloomberg

128



National Bank of Greece NBG Group is the oldest commercial bank and largest financial services group in Greece, with a 25% market share in retail banking and 24% share in deposits. As well as its core domestic market, the institution also focuses on providing banking services in southeastern Europe and the eastern Mediterranean.

The Group provides a wide range of financial products and is also present in 12 other countries through 9 banks and a network of 65 other companies. NBG has a presence in the following countries through acquisitions: Bulgaria, FYROM, Romania, Turkey and Serbia.


Table 320: National Bank of Greece Group, select income statement items, €mm FY 2009 Net interest income 4,064 Provisions for loan losses 1,295 NII less provisions 2,769 Commissions & fee income 742 Other operating income 22 Non-interest expense 2,585 Operating profit (loss) 1,252 PBT 1,252 Taxes 289 Net profit (loss) 923 Source: Bloomberg

Table 321: National Bank of Greece Group, select balance sheet items, €mm FY 2009 Commercial Loans 33,077 Consumer Loans 44,135 Loans to public 74,753 Total Assets 113,394 Deposits 71,194 Short-term borrowings 21,643 Other short-term borrowing 7,187 Long-term borrowing 3,085 Equity 9,828 Source: Bloomberg

Table 322: National Bank of Greece Group, select financial metrics FY 2009 NIM 4.2 ROA 0.8 ROE 10.2 ROC 3.1 C:I 49.8 Core capital 11.3 Source: Bloomberg


Table 323: Covered bond characteristics As at 31 July

2010 S/M/F Covered Bond rating -/Baa3/A- Issuer rating BB+/Ba1/BBB- Cover pool size (€) 8,828,437,187 Number of loans 125,084 Avg loan (€) 70,614 WA original LTFV (in %) 64.3 WA indexed LTFV (in %) 54.2 Remaining tenor (yrs) 21.4 WA seasoning (yrs) 3.6 Fixed rate (in %) 45.2 Self employed (in %) 33.4 Source: Investor report

Table 324: Collateral pool LTFV breakdown Current LTFV ranges As at 31 July


Table 325: Collateral pool Indexed LTFV breakdown Current LTFV ranges As at 31 July


129



Hun

garia

n co

vere

d bo

nds

130



Hungarian Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of Hungarian covered bonds in Figure 70 and Figure 71 respectively.

Figure 70: €-denominated CB Issuance, €mm

0200400600

8001,0001,2001,400

2003 2004 2005 2006 2007 2008 2009

Source: Dealogic, J.P. Morgan Covered Bond Research

Figure 71: €-denominated CB outstanding, €mm

0

1,000

2,000

3,000

4,000

5,000

2003 2004 2005 2006 2007 2008 2009

Source: Dealogic, J.P. Morgan Covered Bond Research

Legislative snapshot We set out below in Table 326 a snapshot of key covered bond attributes in Hungary.

Table 326: Covered bond overview Attribute Commentary Legislative Framework Act XXX 1997 on mortgage banks and mortgage bonds (Mortgage Bank Act) outlines

the special framework applicable to covered bonds issuers. Act CXII 1996 also contains rules on the establishment, operation, supervision and liquidation of mortgage banks. Decree 40/2005 contains rules regarding the calculation of the value of the cover assets and the methodology for stress tests to be applied.

Structure of Issuer Only mortgage banks are allowed to issue covered bonds, with the collateral being kept on their balance sheet.

Supervision Hungarian Financial Supervisory Authority Cover assets Mortgages secured on properties in Hungary or the EEA. Max LTV for

residential/commercial/agricultural mortgages max is 70/60/60% respectively Substitute collateral must not exceed 20% of the cover assets and must consist of liquid assets as specified in the Mortgage Bank Act.

Valuation Individual market values. Decree 25/1997 and Decree 54/1997 request the application of the principle of carefulness in valuing the property.

ALM matching Assets must be greater than liabilities at all times and interest received must exceed that due on the bonds at any time.

Over-collateralisation Not-mandatory Bankruptcy remoteness All assets are registered in the cover register. No acceleration in case of default of the

issuer Compliance with EU legislation



131



Hungary macro background

Figure 72: Hungary real GDP growth, y-on-y, %

-10-8-6-4-202468

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 73: Hungary unemployment level, %

02468

101214

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 74: Hungary CPI and base rate, %

02468

101214

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 75: Hungary consumer confidence index, #

-80-70-60-50-40-30-20-10

0

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Cons. Confidence

Source: Bloomberg

Figure 76: Hungary house price growth, %

-10%-5%0%5%

10%15%20%25%30%

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

House price grow th

Source: FHB Bank

Figure 77: Hungary building permits, sum of previous 12mths, #

0

5,000

10,000

15,000

20,000

25,000

30,000

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Building permits (of prev ious 12mths)

Source: Hungarian Central Statistical Office

132



FHB Bank FHB Land Credit and Mortgage Bank was established by four banks and the Government with the aim of providing long-term financing, creating opportunities for long-term investment and promoting the development of the real estate market.

The government substantially reduced its stake in 2003 and in 2004 the bank’s shares started trading on the Budapest Stock Exchange. The group has since been adding more specialised financial products, such as life annuity, consulting, real estate agency and valuation services to its range of traditional banking services.


Table 327: FHB Bank, select income statement items, HUFmm FY 2009 Net interest income 19,532 Provisions for loan losses 3,951 NII less provisions 15,580 Commissions & fee income 1,414 Other operating income 798 Non-interest expense 10,830 Operating profit (loss) 6,963 PBT 8,251 Taxes 1,681 Net profit (loss) 6,544 Source: Bloomberg

Table 328: FHB Bank, select balance sheet items, HUFmm FY 2009 Loans 636,750 Total Assets 823,432 Short-term borrowings 35,608 Long-term borrowings 641,534 Equity 74,955 Source: Bloomberg

Table 329: FHB Bank, select financial metrics FY 2009 NIM 2.8 ROA 0.9 ROE 11.4 ROC 0.9 C:I 41.1 Source: Bloomberg


Table 330: Covered bond characteristics As at 31 Mar 2010 S/M/F Covered Bond rating -/A3/- Issuer rating -/Baa3/- Cover pool size (HUF) 534,284,446,799 Outstanding liabilities (HUF) 445,076,655,000 Current OC (in %) 13.2 Committed OC (in %) 20.0 Residential mortgages (in %) 98 Commercial mortgages (in %) 2 Residential pool Number of loans 131,854 Average loan (HUF) 3,951,225 WA seasoning (mths) 50 WA remaining term (mths) 173 WA current LTV (in %) 49.5 Floating rate loans (in %) 55.3 Highest regional exposure (in %) Budapest – 25.8 Loans in arrears >2mths (in %) 0.9 LTV breakdown (in %) <=40 30.8 40-50 10.1 50-60 18.4 60-70 31.3 >70 1.4 Source: Moody’s

133



OTP Bank The OTP Group comprises several subsidiaries offering a wide range of financial products. OTP Bank offers the more traditional banking services, while specialised services such as car leasing, investment funds and insurance (using strategic collaboration with French insurance company, Groupama) are offered by the group's subsidiaries.

OTP also has also been expanding its operations by entering neighbouring markets in the Central and Eastern Europe region. It has operations in Bulgaria, Croatia, Romania, Serbia, Slovakia, Ukraine, Montenegro and Russia.


Table 331: OTP Bank, select income statement items, HUFmm FY 2009 Net interest income 590,674 Provisions for loan losses 249,278 NII less provisions 341,396 Commissions & fee income 170,335 Other operating income 0 Non-interest expense 238,080 Operating profit (loss) 273,732 PBT 170,482 Taxes 20,276 Net profit (loss) 151,045 Source: Bloomberg

Table 332: OTP Bank, select balance sheet items, HUFmm FY 2009 Commercial loans 2,466,413 Consumer loans 4,152,251 Other loans 288,430 Loans 6,412,716 Total Assets 9,755,132 Deposits 5,688,887 Short-term borrowings 1,199,725 Other short-term borrowings 260,011 Long-term borrowings 1,412,674 Equity 1,191,606 Source: Bloomberg

Table 333: OTP Bank, select financial metrics FY 2009 NIM 6.7 ROA 1.6 ROE 13.6 ROC 3.9 C:I 27.7 Core capital 13.8 Source: Bloomberg


Table 334: Covered bond characteristics As at 31 Mar 2010 S/M/F Covered Bond rating -/A2/- Issuer rating BB+/Baa1/- Cover pool size (HUF) 1,395,232,815,830 Outstanding liabilities (HUF) 1,268,280,057,836 Current OC (in %) 10.0 Number of loans 300,656 Average loan (HUF) 4,634,741 WA seasoning (mths) 47 WA remaining term (mths) 190 WA current LTV (in %) 58.1 Floating rate loans (in %) 63.3 Highest regional exposure (in %) Budapest – 24.7 Loans in arrears 2-6mths (in %) 1.4 LTV breakdown (in %) <=40 23.0 40-50 17.2 50-60 16.4 60-70 13.8 70-80 12.5 >80 17.2 Source: Moody’s

134



135



Iris

h co

vere

d bo

nds

136



Irish Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of Irish covered bonds in Figure 78 and Figure 79 respectively.


0

5,000

10,000

15,000

20,000

25,000

2003 2004 2005 2006 2007 2008 2009

MortgagePublic sector



0

20,000

40,000

60,000

80,000

100,000

2003 2004 2005 2006 2007 2008 2009

Mortgage

Public sector


Legislative snapshot We set out below in Table 335 a snapshot of key covered bond attributes in Ireland.

Table 335: Irish ACS overview Attribute Commentary Legislative Framework

Asset Covered Securities (ACS) Act 2001 (as amended), along with regulations from the Central Bank of Ireland

Structure of Issuer ACS are issued by Designated Credit Institutions (DCIs) authorised by the Central Bank of Ireland, with restricted business activities. The framework allows for the transfer of eligible cover pool assets to this special-purpose subsidiary (typically called Mortgage or ACS Bank).

Supervision IFSRA, and CBI Cover assets Within this entity, the segregation of assets based on pool-type must be recorded in separate

registers. Mortgage assets are restricted to EEA jurisdictions, plus Australia, New Zealand, Switzerland, Canada, Japan and the US. Securitised mortgage assets are also eligible for inclusion if rated at least AA-, and constitute a maximum of 20% of the pool. Commercial mortgages can constitute a maximum of 10% of the pool. Public sector assets are limited to the same jurisdictions as for mortgage assets, along with debt from highly-rated multilateral development banks and international organisations. DCIs can also keep assets on their balance sheets which are not registered in the cover pool. Substitution assets can also be kept in the cover pool (capped at 15%). A Cover Asset Monitor supervises compliance with the ACS Act’s provisions.

Valuation Prudent market valuation taken on entry into the cover pool for residential assets, and them annually thereafter. Where house prices are declining according to the Permanent/TSB index, the indexed valuation should be used. If prices increase, less than 100% of the upward revision should be used. For commercial exposures, the latest market value should be reviewed by an independent valuer, with mandatory reviews for large (>7%) declines in approved indices.

ALM matching Duration of the cover assets must not be less than that of issued securities. Interest income must exceed interest expense over a 12 month period. For public-sector backed bonds, the duration of the assets can be no greater than 3years longer than the outstanding bonds


Mandatory 103% over-collateralisation for residential and public sector mortgage assets. For commercial assets, minimum over-collateralisation of 10% is required.


Claim and cashflows of an ACS are unaffected by the actual or potential insolvency of the DCI or its parent. In either case, the securities and hedges continue, and do not accelerate.




137



Irish macro backdrop Figure 80:Irish real GDP growth, y-on-y, %

-15

-10

-5

0

5

10

15

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 81: Irish CPI and base rate, %

-8-6-4-202468

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 82: Irish house price growth, y-on-y, %

-30

-20

-10

0

10

20

30

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

House price grow th

Source: Bloomberg

Figure 83: Irish unemployment level, %

02468

101214

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 84: Irish consumer confidence, balance of survey

020406080

100120140

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Cons. Confidence

Source: Bloomberg

Figure 85: Irish dwelling completions, #

0

5000

10000

15000

20000

25000

30000

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Dw ellings completed

Source: Bloomberg

138



AIB Mortgage Bank Snapshot AIB Mortgage Bank (‘AIBMB’) is a DCI under the Irish ACS legislation, and a wholly owned subsidiary of Allied Irish Banks Plc (‘AIB'). AIBMB’s principal purpose is to issue ACS backed by mortgage loans on residential property. These loans may be made directly by the bank itself (AIB transferred its Irish branch-originated residential mortgage business to AIBMB in 2006), sourced from other subsidiaries of AIB Group or third parties.

Most of the bank’s activities are outsourced to AIB under an outsourcing and agency agreement, with AIB originating residential mortgage loans through its branch network, servicing the mortgage loans, providing treasury services and a range of other support services. The bank's activities are financed through the issuance of MCS, a mortgage-backed promissory note facility with the central bank and Irish FSA, and the balance by AIB plc.


Table 336: Key profit & loss figures, €mm 2006 2007 2008 2009 Net interest income 126.5 129.6 81.5 217.6 Provisions for loan losses 2.5 1.3 27.2 78.7 NII less provisions 124.0 128.3 54.3 138.9 Commissions & fee income 0 0 0 0 Other operating income -15.1 22.6 -11.4 -1.4 Non-interest expense 38.8 42.0 39.9 36.1 PBT 69.7 108.4 1.3 94.3 Taxes 8.7 13.5 0.2 11.8 Net profit (loss) 61.0 94.9 1.1 82.5 Source: Bankscope and annual report 2009

Table 337: Key balance sheet figures, €mm 2006 2007 2008 2009 Loans 16,325 18,4230 19,998 20,693 Total Assets 23,346 27,096 37,387 39,308 Bank deposits 16,965 18,832 23,183 27,474 LT funding 5,424 7,083 13,169 10,760 Equity 466 581 537 619.6 Source: Bankscope and annual report 2009


Table 338: Cover pool characteristics Characteristic Ratings S/M/F Covered bond rating AAA/Aaa/AAA Parent rating A-/A1/A- Fitch D:factor 14.00% Moody's TPI Probable Cover pool Jun-10 Total pool (€bn) (March) 19.1 Asset type: Mortgages (€bn) 16.1 Cash & other assets (€bn) (JPM calc) 3.1 Bonds outstanding (€bn) 14.0 # mortgages 112,755 Avg loan balance 143,163 WA Indexed LTV 80.2% LTV>80% 50.7% LTV>90% 42.6% LTV>100% 33.0% Asset seasoning 47.4 Owner occupied 72.5% Second homes 1.2% BTL 26.3% Dublin 31.9% Other 68.1% Source: J.P. Morgan Covered Bond Research, Rating Agencies

139



Bank of Ireland Mortgage Bank Snapshot Bank of Ireland Mortgage Bank (‘BoIMB’) was established in 2004 and is a wholly-owned subsidiary of the Governor & Company of the Bank of Ireland (BoI). In June 2004, BoI transferred its Irish residential mortgage business and substantially all of its Irish residential mortgage loans to BoIMB, whose main activities are the issuance of residential MCS. Portfolios of mortgages can be directly originated, acquired from other parts of the BoI group or third parties.


Table 339: Key profit & loss figures, €mm 2006 2007 2008 2009 Net interest income 164.0 179.0 188.0 195.0 Provisions for loan losses NII less provisions Commissions & fee income -67.0 -80.0 -90.0 -101.0 Other operating income 2.0 3.0 3.0 2.0 Non-interest expense 12.0 14.0 14.0 13.0 PBT 87.0 88.0 87.0 35.0 Taxes 11.0 11.0 11.0 4.0 Net profit (loss) 76.0 77.0 76.0 31.0 Source: Bankscope

Table 340: Key balance sheet figures, €mm 2006 2007 2008 2009 Loans 13,885.0 17,395.0 19,359.0 20,505.0 Total Assets 20,495.0 25,556.0 27,475.0 36,161.0 Deposits 14,549.0 18,165.0 19,383.0 21,663.0 Other funding 5,283.0 6,558.0 7,224.0 13,683.0 Equity 620.0 707.0 763.0 794.0 Source: Bankscope


Table 341: Cover pool characteristics Characteristic Ratings S/M/F Covered bond rating AAA/Aaa/- Parent rating A-/A1/A- Fitch D:factor n/a Moody's TPI Probable Cover pool Jun-10 Total pool (€bn) n/a Asset type: Mortgages (€bn) 10.7 Cash (€bn) n/a Bonds outstanding 8.5 # mortgages 71,717 Avg loan balance 149,611 WA Indexed LTV 92.1% LTV>80% 67.3% LTV>90% 58.6% LTV>100% 47.3% Asset seasoning 58.5 Dublin 32.7% Other 67.3% Source: J.P. Morgan Covered Bond Research, Rating Agencies

140



Depfa ACS Snapshot Depfa ACS Bank (‘DACS’) is a subsidiary of Depfa Bank plc, which in turn is a subsidiary of Deutsche Pfandbriefbank AG (formed by the recent merger of Hypo Real Estate Bank AG and Depfa Deutsche Pfandbriefbank AG). DACS current business model focuses on the financing of public sector assets with ACS. It is the largest ACS issuer, with over €50bn of bonds outstanding currently.

Post the merger, the combined Deutsche Pfandbriefbank is repositioning itself to be a bank specialising in European real estate and public sector finance, funded predominantly by the issuance of pfandbrief. Based on this, we expect DACS to continue in its solvent run-off for a number of years.


Table 342: Key profit & loss figures, €mm 2006 2007 2008 2009 Net interest income 81 141 136 89 Provisions for loan losses n/a n/a n/a 10 NII less provisions 81 141 136 79 Commissions & fee income -2 -2 -11 -58 Other operating income 19 17 14 -10 Operating profit (loss) 93 146 119 24 PBT 81 126 101 7 Taxes 10 -16 -12 0 Net profit (loss) 71 110 89 7 Source: Bankscope

Table 343: Key balance sheet figures, €mm 2006 2007 2008 2009 Loans 47,935 47,716 57,879 53,806 Total Assets 73,344 68,963 96,067 86,959 Deposits 25,814 18,144 34,623 29,642 Other funding 44,416 39,261 52,773 50,842 Equity 605 701 715 571 Source: Bankscope


Table 344: Cover pool characteristics Characteristic Public sector ACS Ratings S/M/F Covered bond rating AAA/Aa2/AAA Issuer rating BBB/A3/A- Fitch D:factor 9.50% Moody's TPI Probable-High Collateral pool As at 31 March Pool 53,200,000,000 Bonds 48,700,000,000 Borrower classification PSE 59.8% Local Govt 28.2% Sovereign 8.9% Other 3.1% Ratings S&P AAA 34.8% AA 42.1% A 18.7% BBB 3.0% Largest jurisdictions 1 USA - 20.7% 2 Germany – 20.4% 3 Iberia – 11.9% 4 Benelux – 11.3% 5 UK - 7.4% Non-EEA 25.9% Source: J.P. Morgan Covered Bond Research, Investor Reports, Rating Agencies

141



EBS Mortgage Finance Snapshot EBS Mortgage Finance (‘EBS MF’) was established in November 2008 as a DCI under the Irish ACS legislation, and a wholly owned subsidiary of the EBS Building Society. EBS MF’s main purpose is to issue MCS backed by mortgage loans on residential property under a €6bn ACS programme.

EBS is one of Ireland’s two building societies (the 6th largest credit institution in Ireland), with close to one hundred outlets across the Irish Republic. EBS traditionally focused its lending business on public sector workers in Ireland. It accounts for approximately 8% of the retail savings market.

Financial performance We set out below some of the key financial performance metrics for EBS:

Table 345: Key profit & loss figures, €mm 2005 2006 2007 2008 Net interest income 119.9 150.1 173.6 155.1 Provisions for loan losses 0.4 4.6 19.1 110 NII less provisions 119.5 145.5 154.5 45.1 Non interest income 16 16.3 16.1 14.3 Other operating income 7.6 3.4 4.1 2.9 Total operating expenses 89.3 99.3 108.1 100.5 Operating profit (loss) 54.2 70.5 85.7 71.8 PBT before XO items 53.8 65.9 66.6 (38.2) Taxes 15.1 8.2 10.7 .4 Net profit (loss) 38.7 57.7 55.9 (37.8) Source: Annual reports

Table 346: Key balance sheet figures, €mm 2005 2006 2007 2008 Loans 13,638 15,646 16,158 18,188 Total Assets 16,556 19,306 19,476 21,374 Deposits 12,120 12,815 12,201 16,230 LT Funding 3,367 5,185 5,677 3,683 Total Reserves 605 659 830 668 Source: Annual reports


Table 347: Cover pool characteristics Characteristic Ratings S/M/F Covered bond rating -/Aaa/AA Issuer rating -/A2/BBB- Fitch D:factor 12.1% Moody's TPI Probable-High Cover pool May-10 Total pool (€bn) 4.1 Asset type: Mortgages (€bn) 4.0 Cash (€bn) 0.1 Bonds outstanding (€bn) 2.4 # mortgages 43,665 Avg loan balance 91,772 WA Indexed LTV 75.1% LTV>80% 48.0% LTV>90% 38.2% LTV>100% 27.3% Asset seasoning 60 Dublin 41.9% Other 58.1% Source: J.P. Morgan Covered Bond Research, Investor Reports, Rating Agencies

142



143



Italia

n co

vere

d bo

nds

144



Italian Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of Italian covered bonds in Figure 86 and Figure 87 respectively.


0

2,000

4,000

6,000

8,000

10,000

12,000

2003 2004 2005 2006 2007 2008 2009

Mortgage

Public sector



0

5,000

10,000

15,000

20,000

25,000

2003 2004 2005 2006 2007 2008 2009

Mortgage

Public sector


Legislative snapshot We set out below in Table 348 a snapshot of key covered bond attributes in Italy.

Table 348: Covered bond overview Attribute Commentary Legislative Framework Law 130 of 1999, decree 310/2006 of Ministry of Economics and Finance, Bank of

Italy regulation on covered bonds, May 2007 Structure of Issuer OBG are issued by credit institutions, where the CB are direct, unsecured,

unsubordinated and unconditional obligations of the Issuer. Under the typical structure, the Issuer lends the sums received from bond issuance to a guarantor SPE, with this SPE using the funds to purchase collateral from the originator. Under this structure, the guarantor agrees to guarantee the Issuer’s obligations to covered bond investors, collateralising the guarantee with the purchased loans and securities acquired from the Issuer. This structure is similar to that used in the UK and the Netherlands. Issuance of OBG is restricted to banks with a minimum consolidated regulatory capital base of at least €500mm, and a total capital ratio (TCR) of at least 9%. If TCR >11% and Tier-1 (T1) ratio > 7%, there is no restriction on issuance. If TCR is 10-11% and T1> 6.5%, then 60% of available eligible assets can be transferred to the SPE, if TCR is 9-10% and T1>6%, then 25% of eligible assets can be transferred only

Supervision Bank of Italy Cover assets Mortgage assets can include: residential mortgages (max 80% LTV), and commercial

mortgages (max 60% LTV). Exposures to public sector entities up to a maximum of 10% of the cover pool from the EEA or Switzerland with a maximum risk-weight of 20% under the Standardised Approach, or from entities from outside the EEA and CH with a risk-weight of 0%. Senior tranches of MBS deals with a maximum risk-weight of 20%. Substitute assets can also be included in the cover pool up to a 15% cap. Cover pool assets are monitored by a dedicated asset monitor, typically an audit firm.

Valuation Individual market values ALM matching Nominal and present value cover required, with liabilities not larger than assets on a

nominal or NPV basis. Interest coverage test Over-collateralisation None required by law Bankruptcy remoteness Covered bond holders protected by preferential claim by law. Similar to the UK and

the Netherlands, in case of insolvency of the originator, the issuer exercises the financial guarantee over the pledged assets.




145



Italian macro background

Figure 88: Italian real GDP growth, y-on-y, %

-8-6-4-20246

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 89: Italian unemployment level, %

0

2

4

6

8

10

12

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 90: Italian CPI and base rate, %

0

1

2

3

4

5

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 91: Italian consumer confidence, balance of survey

-35-30-25-20-15-10-505

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Cons. Confidence

Source: Bloomberg

Figure 92: Italian house price growth, %

-10%-5%0%5%

10%15%20%25%

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

House price grow th

Source: Bloomberg

Figure 93: Italian outstanding mortgages (€mm) and annual growth of mortgage stock, %

050,000

100,000150,000200,000250,000300,000350,000

Dec-

02

Jun-

03

Dec-

03

Jun-

04

Dec-

04

Jun-

05

Dec-

05

Jun-

06

Dec-

06

Jun-

07

Dec-

07

Jun-

08

Dec-

08

Jun-

09

Dec-

09

0%

5%

10%

15%

20%

25%Outstanding mortgages Grow th in o/s mortgages

Source: ECB

146



Banca Carige The Banca Carige Group is one of the six largest financial services groups, with over 1,000 branches and agencies throughout Italy. The group includes the parent, Banca Carige, four other banks (Cassa di Risparmio di Savona, Cassa di Risparmio di Carrara, Banca del Monte di Lucca, Banca Cesare Ponti), an asset management company (Carige Asset Management Sgr) and two insurance companies (Carige Assicurazioni and Carige Vita Nuova). The group is also the majority shareholder of Creditis Servizi Finanziari SpA, a company specialised in consumer credit.

Ownership is split between a foundation (44%), France’s Groupe BPCE (15%), Generali (3%) and a free float of 38%.


Table 349: Banca Carige Group, select income statement items, €mm FY 2009 Net interest income 740 Provisions for loan losses 100 NII less provisions 641 Commissions & fee income 315 Other operating income 23 Non-interest expense 742 Operating profit (loss) 337 PBT 313 Taxes 104 Net profit (loss) 205 Source: Bloomberg

Table 350: Banca Carige Group, select balance sheet items, €mm FY 2009 Loans to public 22,786 Total Assets 36,299 Deposits 14,954 Short-term borrowings 1,963 Other short-term borrowing 1,528 Long-term borrowing 10,020 Equity 3,853 Source: Bloomberg

Table 351: Banca Carige Group, select financial metrics FY 2009 ROA 0.6 ROE 5.6 ROC 1.3 C:I 61.8 Core capital 7.9 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating A-/A2/A Cover pool size (€) 2,157,851,169 Number of loans 24,571 Avg loan (€) 87,821 WA LTV (in %) 48.6 Remaining tenor (mths) 211 WA seasoning (mths) 252 Residential properties (in %) 96 Commercial properties (in %) 4 Source: Investor report

Table 353: Collateral pool LTV breakdown Current LTV ranges As at 30 April


147



Banca Popolare di Milano BPM was founded as a cooperative bank in Milan. The group now offers a range of financial products across Italy. It is the eighth largest banking group and the fourth largest Popolare bank, with a leading position in the north of the country. It operates close to 800 branches across Lombardy, Piedmont, Apulia and Latium.


Table 354: BPM Group, select income statement items, €mm FY 2009 Net interest income 1,052 Provisions for loan losses 337 NII less provisions 715 Commissions & fee income 767 Other operating income 89 Non-interest expense 1,452 Operating profit (loss) 218 PBT 217 Taxes 114 Net profit (loss) 104 Source: Bloomberg

Table 355: BPM Group, select balance sheet items, €mm FY 2009 Loans to public 32,629 Total Assets 44,281 Deposits 21,804 Short-term borrowings 3,384 Other short-term borrowing 2,160 Long-term borrowing 12,012 Equity 4,022 Source: Bloomberg

Table 356: BPM Group, select financial metrics FY 2009 NIM 2.5 ROA 0.2 ROE 2.9 ROC 0.5 C:I 70.6 Core capital 8.6 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating A-/A1/A- Cover pool size (€) 2,306,178,545 Number of loans 22,646 Avg loan (€) 101,836 WA LTV (in %) 56.7 Remaining tenor (mths) 224.8 WA seasoning (mths) 28.4 Residential properties (in %) 100 Commercial properties (in %) - Source: Investor report


2010 0-<=40% 27.4 >40%-<=50% 15.8 >50%-<=60% 13.0 >60%-<=70% 16.7 >70%-<=80% 27.1 >80%-<=100% n/a Source: Investor report

148



Banco Popolare The group was created in 2007 from the merger of Banco Popolare di Verona e Novara and the Banca Popolare Italiana. It is the fourth largest Italian banking group by assets, focused on northern and central Italy, with a traditionally strong presence in the regions of Lombardy, Piedmont, Liguria, Tuscany and Emilia Romagna.

The group focuses its businesses on retail banking, while also offering business banking for small and medium sized corporates.


Table 359: Banco Popolare, select income statement items, €mm FY 2009 Net interest income 2,529 Provisions for loan losses 823 NII less provisions 1,706 Commissions & fee income 1,361 Other operating income 564 Non-interest expense 2,925 Operating profit (loss) 304 PBT 493 Taxes 229 Net profit (loss) 267 Source: Bloomberg

Table 360: Banco Popolare, select balance sheet items, €mm FY 2009 Loans to public 93,334 Total Assets 135,709 Deposits 46,083 Short-term borrowings 35,184 Other short-term borrowing 6,868 Long-term borrowing 25,228 Equity 12,112 Source: Bloomberg

Table 361: Banco Popolare, select financial metrics FY 2009 NIM 2.2 ROA 0.2 ROE 2.5 ROC 0.3 C:I 71.2 Core capital 7.7 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating A-/A2/A- Cover pool size (€) 3,181,799,606 Number of loans 32,670 Avg loan (€) 97,392 Est. WA LTV (in %) 51.8 Remaining tenor (yrs) 18.8 WA seasoning (yrs) 2.3 Floating rate (in %) 67.8 Fixed rate (in %) 32.2 Source: Investor report

Table 363: Collateral pool LTV breakdown Current LTV ranges As at 30 June

2010 0-<=40% 28.8 >40%-<=50% 14.5 >50%-<=60% 15.6 >60%-<=70% 18.3 >70%-<=80% 22.8 Source: Investor report

149



Intesa Sanpaolo Intesa Sanpaolo is a banking group resulting from the merger between Banca Intesa and Sanpaolo IMI. It is one of the leaders of the Italian market as well as having a strong international presence focused on Central-Eastern Europe and the Mediterranean basin.

The Group brings together two major Italian banks and is a leader in its domestic market across all business areas in which it operates (retail, corporate and wealth management). Outside of Italy, it operates over 1,800 branches providing retail and commercial banking services across thirteen countries. Corporate clients are further supported across thirty-one countries, including the US, Russia, China and India.

Intesa Sanpaolo issues public-sector backed OBG.


Table 364: Intesa Sanpaolo, select income statement items, €mm FY 2009 Net interest income 11,716 Provisions for loan losses 3,448 NII less provisions 8,268 Commissions & fee income 6,141 Other operating income -153 Non-interest expense 12,315 Operating profit (loss) 2,889 PBT 3,455 Taxes 686 Net profit (loss) 2,805 Source: Bloomberg

Table 365: Intesa Sanpaolo, select balance sheet items, €mm FY 2009 Loans to public 363,447 Total Assets 624,844 Deposits 203,392 Short-term borrowings 69,256 Other short-term borrowing 65,537 Long-term borrowing 185,243 Equity 53,771 Source: Bloomberg

Table 366: Intesa Sanpaolo, select financial metrics FY 2009 NIM 2.0 ROA 0.4 ROE 5.5 ROC 0.9 C:I 63.7 Core capital 8.4 Source: Bloomberg


Table 367: Public Sector covered bond characteristics As at 30 April

2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating A+/Aa2/AA- Cover pool size (€) 5,764,276,284 Number of loans 388 Avg loan (€) 14,303,415 Remaining tenor (mths) 176 WA seasoning (mths) 60 Fixed rate (%) 76.7 Floating rate (%) 23.3 AAA to AA- (%) 70.9 A+ to A- (%) 17.5 BBB+ to BBB- (%) 0.04 Not Rated (%) 11.6 Sovereign (%) 29 Municipality (%) 28 Region (%) 39 Other (%) 4 Sovereign %) 29 North (%) 36 Central (%) 15 South (%) 12 Spain (%) 4 France (%) 2 Germany (%) 1 Belgium (%) 1 Source: Investor report

150



UBI Banca UBI Banca is a cooperative group that was created in 2007 from the merger of Banche Popolari Unite and Banca Lombarda e Piemontese. While the core markets are the northern regions of Lombardy and Piedmont, the group also has a significant presence in central and southern Italy.

The bank focuses mostly on retail banking, which accounts for 97% of its customer base and 69% of its revenues, although it also has a strong presence in the SME market (24% of its revenues). UBI Banca is the parent company of the group, and performs centralised functions, while supporting the nine network banks along with a wide range of product companies which specialise in corporate banking, consumer credit, asset management, factoring & leasing and life & non-life bancassurance.


Table 368: UBI Banca, select income statement items, €mm FY 2009 Net interest income 2,506 Provisions for loan losses 865 NII less provisions 1,641 Commissions & fee income 1,329 Other operating income 255 Non-interest expense 2,920 Operating profit (loss) 383 PBT 519 Taxes 237 Net profit (loss) 270 Source: Bloomberg

Table 369: UBI Banca, select balance sheet items, €mm FY 2009 Loans to public 97,715 Total Assets 122,313 Deposits 47,722 Short-term borrowings 5,324 Other short-term borrowing 5,427 Long-term borrowing 44,349 Equity 12,350 Source: Bloomberg

Table 370: UBI Banca, select financial metrics FY 2009 NIM 2.3 ROA 0.2 ROE 2.4 ROC 0.5 C:I 68.5 Core capital 8.0 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating A/A1/A+ Cover pool size (€) 5,724,995,550 Number of loans 79,159 Avg loan (€) 72,323 WA LTV (in %) 44.1 Remaining tenor (mths) 193 WA seasoning (mths) 55 Floating rate (in %) 21.8 Fixed rate (in %) 78.2 Source: Investor report



151



UniCredit Group The UniCredit Group has its origins in Italy, which, together with Austria and Germany (through the acquisition of HvB), remains one of its key markets. Over the years the group has grown into one of the main European financial services groups, with a strong presence in Central and Eastern Europe. The group has a presence in 22 countries, with over 9,000 branches worldwide.

The Group offers a wide variety of financial products, ranging from retail to corporate and investment banking, organised along a number of divisions: asset management, CEE, retail and CIB&PB.


Table 373: UniCredit Group, select income statement items, €mm FY 2009 Net interest income 17,607 Provisions for loan losses 8,152 NII less provisions 9,455 Commissions & fee income 9,548 Other operating income 848 Non-interest expense 18,654 Operating profit (loss) 2,885 PBT 2,923 Taxes 888 Net profit (loss) 1,702 Source: Bloomberg

Table 374: UniCredit Group, select balance sheet items, €mm FY 2009 Loans to public 549,037 Total Assets 928,760 Deposits 361,152 Short-term borrowings 108,413 Other short-term borrowing 146,822 Long-term borrowing 214,773 Equity 62,892 Source: Bloomberg

Table 375: UniCredit Group, select financial metrics FY 2009 NIM 1.9 ROA 0.2 ROE 3.0 ROC 0.5 C:I 60.5 Core capital 8.6 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating A/Aa3/A Cover pool size (€) 10,355,271,670 Number of loans 94,357 Avg loan (€) 109,747 WA LTV (in %) 64.2 Remaining tenor (mths) 271 WA seasoning (mths) 35 Floating rate (in %) 33.2 Fixed rate (in %) 58.6 Source: Investor report



152



153



Kor

ean

cove

red

bond

s

154



Korean Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of Korean covered bonds in Figure 94 and Figure 95 respectively.


0

200

400

600

800

1,000

2004 2005 2006 2007 2008 2009 2010



0200400600

8001,0001,2001,400

2004 2005 2006 2007 2008 2009 2010


Legislative snapshot A brief description of the two covered bond structures so far has been included in the respective issuer’s profile page.

155



Korea macro background

Figure 96: Korean real GDP growth, y-on-y, %

-10

-5

0

5

10

15

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 97: Korean unemployment level, %

0

1

2

3

4

5

6

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 98: Korean CPI and base rate, %

0

1

2

3

4

5

6

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 99: Korean business survey index, #

020406080

100120140160

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Business surv ey index

Source: Bloomberg

Figure 100: Korean house price growth, %

-10%

-5%

0%

5%

10%

15%

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

House price grow th

Source: OECD

Figure 101: Korean loans to households (KRWtn) and annual change (RHS), %

0100200300400500600700800

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

0%5%10%15%20%25%30%35%40%Credit to HH (stock) Credit to HH (grow th) RHS

Source: Bloomberg

156



Kookmin Bank Kookmin Bank is the largest bank in South Korea by assets and market capitalisation. It has a strong domestic presence and also a small but growing international presence in Asia. The core business remains lending to individuals and SMEs: these constitute 52% and 34% of its domestic currency loan book while residential mortgages account for 46% of the lending to households.

As there is no specific covered bond legislation in Korea, the issuer adopted a securitisation-like structure, whereby the issuer will make a loan to a guarantor, which will in turn purchase the assets from the issuer via a trust and guarantee the bonds in case of default.

The collateral consists of mortgages and credit card receivables and an Asset Coverage Test (ACT) will be carried out monthly. The asset percentage (AP) is set at 85% for mortgages and 72% for credit cards. An amortisation test will be also carried out if there is a non-cured breach of the ACT. If the credit card pool is underperforming or in case of default of the issuer, the revolving suspension test will end the revolving period and the structure will start trapping cash.


Table 378: Kookmin Bank, select income statement items, KRWmm FY 2009 Net interest income 6,288,438 Provisions for loan losses 2,207,853 NII less provisions 4,080,585 Commissions & fee income 1,324,506 Other operating income 115,527 Non-interest expense 5,088,616 Operating profit (loss) 703,027 PBT 660,471 Taxes 24,668 Net profit (loss) 635,803 Source: Bloomberg

Table 379: Kookmin Bank, select balance sheet items, KRWmm FY 2009 Loans 194,154,600 Total Assets 256,519,800 Deposits 170,385,900 Short-term borrowings 13,843,060 Other short-term borrowings 13,134,670 Long-term borrowings 37,985,060 Equity 19,342,560 Source: Bloomberg

Table 380: Kookmin Bank, select financial metrics FY 2009 NIM 2.7 ROA 0.2 ROE 3.5 ROC 0.8 C:I 60.1 Source: Bloomberg


Table 381: Covered bond characteristics As at 31 Jul 2010 S/M/F Covered Bond rating AA/Aa1/- Issuer rating A/A1/A Cover pool size (KRW) 3,891,529,115,354 Outstanding liabilities (in KRW equivalent) 1,248,500,000,000 Mortgage pool Aggregate amount outstanding (in KRW) 1,660,963,065,784 Number of loans 17,438 Average loan balance (in KRW) 95,249,631 WA seasoning (mths) 41 WA LTV (in %) 46.5 >90days arrears (in %) 0.09 Eligible credit card pool Aggregate amount outstanding (in KRW) 2,230,566,049,570 Number of account 1,879,462 Average account balance 1,186,828 >30 days arrears (in %) 0.79 Source: Investor report

157



Korea Housing Finance Corporation KHFC is a quasi-government financial institution established with the aim of supplying long term housing finance. KHFC also provides mortgage guarantees to prospective homebuyers and reverse mortgage products.

The company is a regular issuer of MBS and student loan ABS and has only issued their first covered bond (called mortgage-backed bonds, MBB) in July, as permitted by Art. 31 of the KHFC Act. It also announced that it is planning to issue $2bn of covered bonds annually starting in 2011.

The underlying collateral is purchased from participating banks (SC First Bank Korea, Shinhan Bank, Woori Bank, Kookmin Bank, Korea Exchange Bank, Industrial Bank of Korea and Hana Bank, although in this case only SC First Bank, Shinhan and Woori participated) and is subject to an ACT (eligible assets at least equal to liabilities) and a portfolio yield test (interest received has to be greater than liabilities and expenses).

While there is no acceleration of the bonds in case of an issuer event of default, the bonds will accelerate if there is a covered bond event of default i.e. failure to pay interest and/or principal as due.


Table 382: KHFC, select income statement items, KRWmm FY 2009 Net interest income 51,805 Provisions for loan losses 11,722 NII less provisions 40,083 Commissions & fee income 65,507 Other operating income 159,877 Non-interest expense 295,470 Operating profit (loss) 18,668 PBT 23,245 Taxes -12,501 Net profit (loss) 35,746 Source: Bloomberg

Table 383: KHFC Bank, select balance sheet items, KRWmm FY 2009 Loans 2,795,500 Total Assets 3,443,840 Short-term borrowings 260,000 Other short-term borrowings 185,000 Long-term borrowings 2,039,782 Equity 884,917 Source: Bloomberg


Table 384: Covered bond characteristics As at 30 Jun 2010 S/M/F Covered Bond rating -/Aa3/- Issuer rating A/A2/- Cover pool size (KRW) 1,120,367,432,635 Outstanding liabilities (in KRW equivalent using issuance date FX rate)

604,700,000,000

Committed OC (in %) 19 Number of loans 10,265 Average loan balance (in KRW) 109,144,416 WA seasoning (mths) 11.7 WA LTV (in %) 49.1 WA indexed LTV (in %) 47.6 Interest only loans (in %) 37.7 LTV breakdown (in %) 0-40 22.4 40-50 21.2 50-60 56.4 Source: Moody’s

158



159



Luxe

mbo

urgi

sh c

over

ed b

onds

160



Luxembourgish Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of Luxembourgish covered bonds in Figure 102 and Figure 103 respectively.


0

2,000

4,000

6,000

8,000

10,000

12,000

2003 2004 2005 2006 2007 2008 2009

Mortgage

Public sector



05,000

10,00015,00020,00025,00030,00035,00040,000

2003 2004 2005 2006 2007 2008 2009

Mortgage

Public sector


Legislative snapshot We set out below in Table 385 a snapshot of key covered bond attributes in Luxembourg.

Table 385: Covered bond overview Attribute Commentary Legislative Framework Article 12-1 to 12-9 of the Law of April 5, 1993 on the Financial Sector and June 22,

2000 amendment to Law of November 21, 1997 on banks issuing mortgage bonds. The Luxembourg Supervisory Authority (Commission de Surveillance du Secteur Financier, or CSSF) also released circular 01/42 on the rule for the appraisal of real estate and circular 03/95 on the maintenance of the cover register. Further amended in 2008

Structure of Issuer Bonds are issued by specialised mortgage credit institutions, with licenses from the financial services regulator

Supervision CSSF Cover assets Three types of collateral: mortgages, public sector and moveable assets (vessels,

aircraft, railway). Only EU, EEA and OECD assets are eligible. Public sector loans or bonds must be guaranteed by a national, regional or local government or public entity; mortgage must have an LTV<80% if residential or <60% if commercial. Substitution assets can make up to 20% of the pool and can be cash, loans, or bonds satisfying the conditions. Monitoring of cover pool compliance through an internationally active auditor is mandatory

Valuation Individual market values ALM matching Eligible assets must be 102% of liabilities at all times on a nominal and NPV basis.

Derivatives can be used to help meet cashflow requirements Over-collateralisation Mandatory 102% over-collateralisation on both a nominal and NPV basis Bankruptcy remoteness Issuers are required to have a register to record the cover assets; the register must

have one section each for mortgage and public sector collateral and up to three for moveable assets. Bonds are insolvency remote. On bankruptcy, the Supervisory Authority will take over management of the LdG and the cover pool. It may then either conclude a servicing contract or even transfer the LdG to a suitable CB issuer

Compliance with EU legislation UCITS and CRD compliant Source: ECBC, national legislation

161



Dexia LdG Banque Dexia LdG Banque was founded in 2007 and is a fully owned subsidiary of Dexia Banque Internationale à Luxembourg SA, part of the Dexia Group, which offers a range of financial products spanning from public and project finance to personal finance, insurance and investment management services.

The first LdG was issued out of the €25bn EMTN programme in September 2007. The cover pool consists entirely of public sector assets that are eligible according to the Article 12-1 of the Financial Services Act of April 5, 1993. Eligible countries are those included in the EEA and the OECD.


Table 386: Dexia LdG Banque, select income statement items, € FY 2009 Net interest income 23,608,834 Provisions for loan losses 135,905 NII less provisions 23,472,929 Commissions and fee income 36,763 Non-interest expense 134,293 Operating profit (loss) 22,552,186 PBT 22,688,091 Taxes 1,690,378 Net profit (loss) 20,997,713 Source: Dexia LdG Banque Annual Report 2009

Table 387: Dexia LdG Banque, select balance sheet items, € FY 2009 Loans to public 1,561,162,211 Total Assets 5,132,240,797 Deposits 1,594,547,955 Equity 162,344,188 Source: Dexia LdG Banque Annual Report 2009

Table 388: Dexia LdG Banque, select financial metrics FY 2009 C:I 7 Core capital 24.3 Source: Dexia LdG Banque Annual Report 2009



2010 S/M/F Covered Bond rating AAA/-/- Issuer rating (Dexia Banque) A/A1/A+ Eligible Loans (€) 3,095,000,000 Eligible Debt Securities (€) 2,051,000,000 Substitution Assets (€) 441,000,000 Country split (in %) France 31.5 USA 16.7 Spain 13.2 Luxembourg 13.0 Germany 7.8 Sweden 4.1 Greece 3.8 Italy 3.1 Australia 1.6 Poland 1.6 Denmark 0.9 Ireland 0.9 UK 0.7 Finland 0.6 Norway 0.3 Canada 0.3 Source: Investor report

162



Erste Europaeische Pfandbrief und Kommunalbank (EEPK) EEPK, part of the Commerzbank Group, focuses mostly on lending to public bodies such as governments, regional assemblies, local authorities and public corporations throughout the OECD zone. EEPK benefits from a group letter of comfort from Commerzbank AG. It is one of Commerbank's two public-sector covered bond issuing subsidiaries in Luxembourg (the other being Eurohypo Luxembourg).

Just over half of the cover pool is located in the USA and Canada, while almost 60% of the cover pool has an external rating of at least AA/Aa3. FX and interest rate risk are hedged using derivatives.

In April 2009, S&P lowered the rating of EEPK’s LdG to AA+ from AAA due to changes in its covered bond rating methodology.


Table 390: EEPK, select income statement items, € FY 2009 Net interest income 2,670,771 Commissions and fee income 10,000 Non-interest expense 8,390,079 Operating profit (loss) 9,768,101 PBT -85,283,746 Taxes 301,225 Profit from write-down of capital 44,366,313 Net profit (loss) -41,218,658 Source: EEPK Annual Report 2009

Table 391: EEPK, select balance sheet items, € FY 2009 Loans 1,817,250,364 Total Assets 6,299,805,316 Deposits 234,856,293 Short-term borrowings 426,000,000 Other short-term borrowings 16,533,876 Long-term borrowings 1,000,000 Equity 281,350,509 Source: EEPK Annual Report 2009

Table 392: EEPK, select financial metrics FY 2009 Core capital 36.3 Source: EEPK Annual Report 2009



2010 S/M/F Covered Bond rating AA+/ - / - Issuer rating (Commerzbank AG) A/Aa3/A+ Cover pool size (€) 5,231,600,000 Country split (in %) USA 36.8 Canada 14.9 Germany 7.3 Italy 6.0 Switzerland 5.7 Rep. of Korea 4.0 Hungary 3.5 Spain 2.8 Poland 2.6 Other 16.4 Rating split (in %) AAA 14.4 AA (incl. AA+ and AA-) 43.7 A (incl. A+ and A-) 27.0 BBB (incl. BBB+ and BBB-) 5.5 NR 9.4 Source: Investor report

163



Eurohypo Luxembourg SA Eurohypo Europaische Hypothekenbank (Eurohypo Luxembourg SA) focuses on public lending to EU, EEA and OECD countries and is Luxembourg’s largest mortgage bank. It was founded in 1989 and initially conducted general banking until it received its special purpose banking license in 1999.

Eurohypo has a market share of more than 50% in terms of volume of LdG in circulation. The assets in the cover pool are largely investment grade and mostly independent from any monoline rating. Eurohypo Luxembourg and its parent are today part of the Commerzbank Group, and are timetabled to be divested by 2014 as part of the EU conditions for approval of state aid from the German taxpayer.


Table 394: Eurohypo SA, select income statement items, € FY 2009 Net interest income 60,250,956 Commissions and fee income 1,467 Other operating income 2,754,660 Non-interest expense 7,076,399 Operating profit (loss) 47,287,334 PBT 36,704,334 Taxes 1,172,245 Net profit (loss) 35,532,089 Source: Eurohypo SA Annual Report 2009

Table 395: Eurohypo SA, select balance sheet items, € FY 2009 Loans to public 5,973,006,297 Total Assets 23,456,191,952 Short-term borrowings 6,713,709 Other short-term borrowings 778,914 Long-term borrowing 35,000 Equity 372,476,525 Source: Eurohypo SA Annual Report 2009

Table 396: Eurohypo SA, select financial metrics FY 2009 C:I 11.6 Core capital 31.0 Source: Eurohypo SA Annual Report 2009



2010 S/M/F Covered Bond rating AAA/-/AAA Issuer rating A-/-/A Cover pool size (€) 16,687,000,000 Public debtor debt (in %) 50.0 LdG debt (in %) 43.0 Over-collateralisation (in %) 7.0 Country split (in %) USA 21.8 Germany 16.0 GBR 14.5 Canada 13.6 Switzerland 8.2 Spain 5.3 Italy 4.8 Other 15.8 Europe 57.5 North America 35.3 Asia 2.7 Supra 4.5 Split by guarantee (in %) Not wrapped 90.3 MBIA 3.5 XL 0.3 AMBAC 0.6 FGIC 2.6 FSA 2.7 S&P Rating split (in %) AAA 38.2 AA (incl. AA+ and AA-) 16.1 A (incl. A+ and A-) 23.1 BBB (incl. BBB+ and BBB-) 0.7 Below BBB or NR/Internal rating only 21.9 Fitch Rating split (in %) AAA 32.4 AA (incl. AA+ and AA-) 20.6 A (incl. A+ and A-) 8.2 BBB (incl. BBB+ and BBB-) 0.7 Below BBB or NR/Internal rating only 38.1 Source: Investor report

164



Hypo Pfandbrief Bank International SA HPBI is part of the Hypo Real Estate Group, which focuses on real estate and public finance. It is a subsidiary of Depfa Bank plc, the Irish subsidiary of HRE AG. HRE AG is currently owned 100% by the German state, through SoFFin, the Financial Market Stabilisation Agency. HRE is currently in the process of a significant restructuring of its balance sheet.

As for other Luxembourgish issuers, HPBI is active in the international public sector lending business. It was the first Luxembourg issuer of LdG in 2000. The cover pool is skewed towards Europe, which accounts for just over 60% of the cover assets, despite the single largest country exposure being to the USA. The vast majority (95%) of the underlying collateral is investment grade. Over-collateralisation is just under 9%.


Table 398: HPBI SA, select income statement items, € FY 2009 Net interest income 18,602,066 Other operating income 778,072 Non-interest expense 3,980,392 PBT 2,815,569 Taxes 349,783 Net profit (loss) 2,465,786 Source: HPBI SA Annual Report 2009

Table 399: HPBI SA, select balance sheet items, € FY 2009 Loans to public 810,570,779 Total Assets 8,054,395,760 Deposits 166,054 Short-term borrowings 1,594,614 Other short-term borrowings 704,410 Long-term borrowing 1,487,097 Equity 123,787,628 Source: HPBI SA Annual Report 2009

Table 400: HPBI SA, select financial metrics FY 2009 Core capital 15.7 Source: HPBI SA Annual Report 2009



2010 S/M/F Covered Bond rating AA/-/- Issuer rating (Hypo Public Finance Bank) BBB+/A3/A- Public sector cover pool size (€) 4,528,000,000 Over-collateralisation (€) 360,000,000 Country split (in %) USA 27.4 Germany 14.0 Austria 11.5 Canada 10.0 Spain 8.5 Switzerland 7.9 Portugal 3.5 Italy 3.4 Other 13.9 Europe 60.5 North America 37.4 Asia 2.1 Rating split (in %) AAA 49.2 AA (incl. AA+ and AA-) 27.4 A (incl. A+ and A-) 18.5 BBB (incl. BBB+ and BBB-) 1.9 NR 3.1 Source: Investor report

165



Nord/LB Covered Finance Bank SA Nord/LB CFB SA is a wholly owned subsidiary of Nord/LB Luxembourg SA and part of the Nord/LB Group. It is also in receipt of a direct letter of support from the parent company. The only objective of Nord/LB CFB is to conduct business as a covered bond bank: as such, the bank takes on part of the public finance business generated by Nord/LB Girozentrale and provides funding primarily via the issuance of covered bonds. Nord/LB CFB is the only institution within the Landesbank framework to provide such funding platform to its savings bank.

The cover pool is heavily concentrated in Germany and the USA and mostly investment grade-rated, although the rating distribution is rather evenly distributed amongst the three top investment grade ratings (AAA-A).


Table 402: Nord/LB SA, select income statement items, € FY 2009 Net interest income 8,725,000 Provisions for loan losses 289,000 NII less provisions 8,436,000 Commissions and fee income 1,175,000 Other operating income -2,323,000 Non-interest expense 5,351,000 PBT 7,955,000 Taxes 1,591,000 Net profit (loss) 6,364,000 Source: Nord/LB SA Annual Report 2009

Table 403: Nord/LB SA, select balance sheet items, € FY 2009 Loans to public 2,001,600,000 Total Assets 5,930,600,000 Short-term borrowings 1,960,800,000 Other short-term borrowings 367,900,000 Long-term borrowing 641,600,000 Equity 64,300,000 Source: Nord/LB SA Annual Report 2009

Table 404: Nord/LB SA, select financial metrics FY 2009 ROE 11.9 C:I 24.6 Core capital 7.4 RWA (€mm) 908 Source: Nord/LB SA Annual Report 2009



2010 S/M/F Covered Bond rating AAA/-/- Issuer rating A-/-/- Cover pool size (€) (as at 31 March) €4.3bn Country split (in %) Germany 28.0 USA 24.9 Luxembourg 9.8 Canada 5.2 Spain 4.4 Other 27.7 Rating split (in %) AAA 32.5 AA (incl. AA+ and AA-) 24.1 A (incl. A+ and A-) 38.9 BBB (incl. BBB+ and BBB-) 4.6 Source: Investor report

166



167



New

Zea

land

cov

ered

bon

ds

168



New Zealand Covered Bonds Legislative snapshot There is no special covered bond legislation in New Zealand. Therefore, since only Bank of New Zealand has issued covered bonds so far, we provide a brief overview of the structure of the programme in the issuer profile section below.

169



New Zealand macro background

Figure 104: New Zealand real GDP growth, y-on-y, %

-4

-2

0

2

4

6

8

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 105: New Zealand unemployment level, %

012345678

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 106: New Zealand CPI and base rate, %

0

2

4

6

8

10

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 107: New Zealand consumer confidence index, #

020406080

100120140

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Cons. Confidence

Source: Bloomberg

Figure 108: New Zealand house price growth, %

-10%

-5%

0%

5%

10%

15%

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

House price grow th

Source: OECD

Figure 109: New Zealand dwelling sales, #

0

2,000

4,000

6,000

8,000

10,000

12,000

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Dw elling sales

Source: Bloomberg

170



Bank of New Zealand BNZ is the country's fourth largest bank and is a wholly owned subsidiary of National Australia Bank.

This is the first covered bond out of New Zealand; since there is no special covered bond law, the deal is governed by New Zealand and English contract and common law. BNZ will sell the mortgages to a guarantor, which will purchase these using the proceeds of the covered bonds issuance and will then guarantee the bonds. The bondholder will have dual recourse to the issuer and the cover pool. This structure resembles that used in Canada, the Netherlands and the UK.

The bonds will benefit from a defined cover pool with LTV restrictions, overcollateralisation and asset coverage and amortisation tests (only the first 80% LTV will be taken into account for inclusion in the cover pool and liabilities may not exceed 97% of the asset value at any time).


Table 406: Bank of New Zealand, select income statement items, NZDmm FY 2009 Net interest income 1,351 Provisions for loan losses 0 NII less provisions 1,351 Commissions & fee income 0 Other operating income 397 Non-interest expense 777 Operating profit (loss) 875 PBT 685 Taxes 866 Net profit (loss) -181 Source: Bloomberg

Table 407: Bank of New Zealand, select balance sheet items, NZDmm FY 2009 Loans 55,142 Total Assets 69,862 Deposits 27,233 Short-term borrowings 3,901 Other short-term borrowings 8,304 Long-term borrowings 1,280 Equity 3,745 Source: Bloomberg

Table 408: Bank of New Zealand, select financial metrics FY 2009 NIM 26.5 ROA -0.3 ROE -5.6 ROC -2.4 C:I 47.0 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating AA/Aa2/AA Cover pool size (NZD) 493,000,000 Outstanding liabilities (in NZD) 425,000,000 Nominal overcollateralisation (in %) 16.0 Nominal asset percentage (in %) 86.2 Supporting asset percentage (in %) 88.3 Number of loans 3,539 Average loan size (in NZD) 139,305 WA residual maturity (yrs) 22.8 WA seasoning (mths) 27.0 WA LTV (in %) 44.6 Highest geographic exposure (in %) Auckland – 30.4 Interest only loans (in %) 5.9 Source: Fitch Ratings

171



Nor

weg

ian

cove

red

bond

s

172



Norwegian Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of Norwegian covered bonds in Figure 110 and Figure 111 respectively.


05,000

10,00015,00020,00025,00030,00035,000

2003 2004 2005 2006 2007 2008 2009

Public sector

Mortgage



0

10,000

20,000

30,000

40,000

50,000

60,000

2003 2004 2005 2006 2007 2008 2009

Public sector

Mortgage


Legislative snapshot We set out below in Table 410 a snapshot of key covered bond attributes in Norway.

Table 410: Covered bond overview Attribute Commentary Legislative Framework Act on Financing Activity and Financial Institutions (No. 40 of 10 June 1988), as

amended in 2007 (No. 11 of 6 March 2007), along with accompanying regulations. Structure of Issuer Bonds are issued by specialised mortgage credit institutions, with a license from the

Norwegian FSA (specialist banking principle). Supervision Kredittilsynet (Norwegian FSA) appoints an independent party to check that the value

of the cover pool exceeds that of the claims and that the register is in accordance with the laws and regulations.

Cover assets Residential (up to 75% LTV) and commercial (up to 60% LTV) mortgages, public assets within EEA or OECD. Up to 20% of cover pool can be substitute assets (30% can be temporarily allowed). All assets must be recorded in a cover pool register.

Valuation Individual market values. ALM matching NPV of cover pool should always remain above that of the liabilities; cashflows from

pool and derivatives should be enough to cover payments on liabilities and derivatives; FX risk should be hedged and the issuer must set limits for cashflow mismatches using a parallel +/- 100bp shift in the curve.

Over-collateralisation No mandatory OC, but voluntary OC is considered bankruptcy remote. Bankruptcy remoteness Segregation of assets in a special cover register, with a preferential claim on register

collateral. Insolvency of the issuer does not necessarily result in acceleration of the outstanding liabilities.




173



Norwegian macro background

Figure 112: Norwegian real GDP growth, y-on-y %

-4

-2

0

2

4

6

8

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 113: Norwegian unemployment level, %

0

1

2

3

4

5

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 114: Norwegian CPI and base rate %

-2

0

2

4

6

8

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 115: Norwegian consumer confidence, index

-20

-10

0

10

20

30

40

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Consumer confidence

Source: Bloomberg

Figure 116: Norwegian nominal house price growth, y-on-y %

-10%

-5%

0%

5%

10%

15%

20%

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10


Source: OECD

Figure 117: Norwegian building permits issued, index

0

20

40

60

80

100

120

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

OECD Building permits issued

Source: Bloomberg

174



DnB NOR Boligkreditt ASA DnB NOR Boligkreditt is the covered bond issuer set up by DnB NOR Bank ASA, Norway’s leading financial services group. DnB NOR has a 30% market share of the retail lending market and accounts for 35% of corporate lending in Norway. It is 34% owned by the Norwegian Government.

The covered bond programme, set up in June 2007, is rated AAA by all three agencies and totals around €40bn. The pool is entirely backed by Norwegian residential mortgages, with an OC of 40%, as of February 2010. As of Q1 2010, defaulted loans in the pool (defined as 90+ days arrears) amount to only 0.13%.


Table 411: DnB NOR Boligkreditt, select income statement items, NOK000 FY 2009 Net interest income 2,962,029 Other operating income -880,892 Non-interest expense -801,404 Operating profit (loss) 1,216,693 Writedowns -63,040 Taxes -343,419 Net profit (loss) 873,273 Source: DnB Nor Boligkreditt annual report 2009

Table 412: DnB NOR Boligkreditt, select balance sheet items, NOK000 FY 2009 Loans to public 337,111,139 Loans to credit institutions 1,813,745 Total assets 350,943,492 Source: DnB Nor Boligkreditt annual report 2009

Table 413: DnB NOR Boligkreditt, select financial metrics 2008 2009

Capital Adequacy Ratio 8.1 10.0 Tier 1 ratio 5.9 8.0 RWA 97,023,137 145,564,498 Source: DnB Nor Boligkreditt annual report 2009



2010 Covered Bond rating S/M/F AAA/Aaa/AAA Parent rating S/M/F (DnB Nor Bank) A+/A3/- Total Cover Pool Balance: (NOK000) 328,701,869 Substitution assets: 0 Over-collateralisation 40.2% WA Loan Balance: (NOK) 987,921 No. of Loans: 332,923 WA Seasoning (in months): 50 WA Remaining term (in months): 261 WA Current LTV (in %): 57 Interest only mortgages (in %): 28 Fixed rate mortgages (in %) 6 Source: Investor report


2010) 0-<=40% 37.3 >40%-<=50% 11.9 >50%-<=60% 13.5 >60%-<=70% 17.6 >70%-<=75% 13.9 >75% 5.9 Source: Investor report

175



SpareBank 1 Boligkreditt ASA SpareBank 1 Boligkreditt is a mortgage company licensed by the Norwegian FSA. It is a separate legal entity established in accordance with the Norwegian covered bonds legislation in order to acquire mortgages from banks in the SpareBank 1 Alliance and finance further lending via the issuance of covered bonds.

SpareBank 1 Gruppen AS is owned by Sparebanken Hedmark (12%), SpareBank 1 Nord-Norge (19,5%), SpareBank 1 SMN (19,5%), SpareBank 1 SR-Bank (19,5%), Samarbeidende Sparebanker AS (19,5%) and the Norwegian Federation of Trade Unions (LO)/affiliated unions (10 %). Together, they constitute the country’s second largest lender.


Table 416: SpareBank 1 Boligkreditt, select income statement items, NOK000 FY 2009 Net interest income 107,902 Other operating income 28,662 Non-interest expense 19,387 Operating profit (loss) 117,137 PBT 116,771 Taxes 32,652 Net profit (loss) 84,119 Source: SpareBank 1 Boligkreditt annual report 2009

Table 417: SpareBank 1 Boligkreditt, select balance sheet items, NOK000 FY 2009 Flexible loans 31,186,607 Amortising loans 43,170,396 Total lending to customers 74,357,003 Total assets 84,232,850 Source: SpareBank 1 Boligkreditt annual report 2009

Table 418: SpareBank 1 Boligkreditt, select financial metrics 2008 2009 Cost:Income (%) n/a n/a Tier 1 ratio (%) 10.44% 10.76% RWA (€mm) n/a n/a Source: SpareBank 1 Boligkreditt annual report 2009



2010 Covered Bond rating S/M/F -/Aaa/AAA Issuer rating S/M/F -/A1/A Total Cover Pool Balance: (NOK000) 62,029,369 Substitute collateral (NOK000) 10,851,269 WA Loan Balance: (NOK) 1,073,772 No. of Loans: 57,805 WA Seasoning (in months): 27 WA Original LTV (in %): 57 WA Current LTV (in %): 52 WA Interest Rate (in %): 3.56 Source: Investor report


2010) 0-<=40% 24.1 >40%-<=50% 16.6 >50%-<=60% 22.0 >60%-<=70% 23.4 >70%-<=75% 11.5 >75% 2.4 Source: Investor report

176



Terra Boligkreditt AS Terra Boligkreditt is a specialised credit institution, majority owned by Terra Gruppen AS (90.1%). Terra Gruppen itself is owned by 78 local Terra banks (98% ownership) and was constituted in order to provide its shareholder banks access to areas that are too small to make entering their market cost effective. The company therefore negotiates on behalf of all the banks to arrange banking solutions that deliver strategic benefits and economies of scale. The shareholder banks are committed to using the solutions negotiated for the group in the most important areas.

Terra banks rank as the fourth largest lender to the retail sector, with a market share of 9%, while the focus on the corporate market is limited.


Table 421: Terra Boligkreditt, select income statement items, NOK000 FY 2009 Net interest income 138,689 PBT 47,967 Taxes 13,431 Net profit (loss) 34,536 Source: Terra Boligkreditt annual report 2009

Table 422: Terra Boligkreditt, select balance sheet items, NOK000 FY 2009 Lending to customers 22,040,889 Retail market 87.1% Housing co-operatives 12.9% Total Assets 25,932,216 Source: Terra Boligkreditt annual report 2009

Table 423: Terra Boligkreditt, select financial metrics 2008 2009 Cost:Income 37.08 25.57 Capital Adequacy Ratio 16.6 11.3 RWA 4,960,025 7,905,088 Source: Terra Boligkreditt annual report 2009

Table 424: Terra Boligkreditt, funding profile Funding profile 2009 Covered bonds 51% Swaps with Govt 41% Other bond debt 4% ST borrowing 3% Subordinated loan 1% Source: Terra Boligkreditt annual report 2009



December 2009 Covered Bond rating S/M/F -/Aa2/- Issuer rating S/M/F n/a Total Cover Pool Balance (€mm): 2,650 WA Loan Balance (€): 159,105 No. of Loans: 16,660 WA LTV (in %): 46 Cooperative housing (in %): 13 Substitute assets (in %): 15 Fixed rate mortgages (in %) 11 Source: Investor presentation

177



Por

tugu

ese

cove

red

bond

s

178



Portuguese Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of Portuguese covered bonds in Figure 118 and Figure 119 respectively.


01,0002,0003,0004,0005,0006,0007,0008,000

2003 2004 2005 2006 2007 2008 2009

Public sectorMortgage



0

5,000

10,000

15,000

20,000

25,000

2003 2004 2005 2006 2007 2008 2009

Public sectorMortgage


Legislative snapshot We set out below in Table 426 a snapshot of key covered bond attributes in Portugal.

Table 426: Covered bond overview Attribute Commentary Legislative Framework Decree 59/2006 and Decree 298/1992, Notices 5-8/2006, Reg instrument 13/2006 Structure of Issuer The originator either issues covered bonds directly from the institution’s balance sheet

or transfers the assets to a specialised credit institution (Mortgage Credit Institution or MCI) who then issues the bonds

Supervision Bank of Portugal and CMVM Cover assets Mortgages (Obrigacoes Hipotecarias): both residential (max LTV 80%) and

commercial (max LTV 60%) within the EY; the property has to be valued every three years for residential properties (or annually for exposures >€500k) and annually for commercial ones. Public sector collateral (Obrigacoes Sobre o Sector Publico): loans granted and debt issued or guaranteed by governments or local authorities within the EU. Substitute collateral is limited to a maximum of 20% of the cover pool, and can include cash deposits with the Bank of Portugal or other credit institutions rated at least A-, government bonds or other eligible bonds (including ECB Tier 1 assets). Cover pools are monitored by a designated independent supervisor

Valuation Individual market values ALM matching Nominal and present value cover required, with minimum 5.26% OC for mortgage

bonds. Interest coverage ratio Over-collateralisation 5.26% for mortgage bonds, none required for public sector bonds Bankruptcy remoteness List of assets is maintained in the cover register. No acceleration on issuer insolvency Compliance with EU legislation



179



Portuguese macro background

Figure 120: Portuguese real GDP growth, y-on-y, %

-6

-4

-2

0

2

4

6

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 121: Portuguese unemployment level, %

0

2

4

6

8

10

12

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 122: Portuguese CPI and base rate, %

-3-2-10123456

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 123: Portuguese consumer confidence, balance of survey

-60

-50

-40

-30

-20

-10

0

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Cons. Confidence

Source: Bloomberg

Figure 124: Portuguese house price growth, %

-8%-6%-4%-2%0%2%4%6%

Sep-

05

Jan-

06

May

-06

Sep-

06

Jan-

07

May

-07

Sep-

07

Jan-

08

May

-08

Sep-

08

Jan-

09

May

-09

Sep-

09

Jan-

10

May

-10

House price grow th

Source: INE

Figure 125: Portuguese outstanding mortgages (€mm) and annual growth of mortgage stock, %

0

20,000

40,000

60,000

80,000

100,000

120,000

Dec-

02

Jun-

03

Dec-

03

Jun-

04

Dec-

04

Jun-

05

Dec-

05

Jun-

06

Dec-

06

Jun-

07

Dec-

07

Jun-

08

Dec-

08

Jun-

09

Dec-

09

Jun-

10

0%

5%

10%

15%

20%Outstanding mortgages Grow th in o/s mortgages

Source: ECB

180



Banco Comercial Portugues Banco Comercial Portugues was founded in 1985 and in 2004 was rebranded as Millennium BCP to unite under one name the different brands that made up the group’s retail banking operations.

After securing a strong presence in the domestic market, BCP has started to expand in foreign markets, such as Poland, Greece, Turkey, Angola, Mozambique and the USA. In the Iberian market, Millennium bcp and Banco Sabadell established an agreement according to which Millennium bcp supports Banco Sabadell's Customers in Portugal and Banco Sabadell supports Millennium bcp's Customers in Spain.


Table 427: Banco Comercial Portugues, select income statement items, €mm FY 2009 Net interest income 1,337 Provisions for loan losses 560 NII less provisions 777 Commissions & fee income 866 Other operating income 57 Non-interest expense 1,674 Operating profit (loss) 252 PBT 296 Taxes 46 Net profit (loss) 225 Source: Bloomberg

Table 428: Banco Comercial Portugues, select balance sheet items, €mm FY 2009 Loans to public 75,191 Total Assets 95,550 Deposits 46,066 Short-term borrowings 10,306 Other short-term borrowing 7,940 Long-term borrowing 22,185 Equity 7,221 Source: Bloomberg

Table 429: Banco Comercial Portugues, select financial metrics FY 2009 NIM 1.5 ROA 0.2 ROE 4.2 ROC 0.6 C:I 65.5 Core capital 9.3 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aa2/AAA Issuer rating BBB+/A3/A Cover pool size (€) 6,404,986,538 Number of loans 121,365 Avg loan (€) 52,775 WA LTV (in %) 46.9 Source: Investor report



181



Banco Portugues de Investimento The BPI group, headed by Banco BPI, is a financial services group offering services to both retail and corporate customers. It is the fourth largest private financial group with a market share of 10% in deposits and loans and more than fifteen percent in asset management.

The group's commercial bank (Banco BPI) serves 1.5mm individuals, companies and institutions with over 700 branches. BPI also provides investment banking services at the Iberian peninsula level and asset management products. The group is also active in Angola, where it has a 20% market share via its controlling stake in Banco de Fomento.


Table 432: Banco Portugues de Investimento, select income statement items, €mm FY 2009 Net interest income 589 Provisions for loan losses 166 NII less provisions 423 Commissions & fee income 322 Other operating income 103 Non-interest expense 744 Operating profit (loss) 323 PBT 319 Taxes 45 Net profit (loss) 175 Source: Bloomberg

Table 433: Banco Portugues de Investimento, select balance sheet items, €mm FY 2009 Loans to public 29,956 Total Assets 47,449 Deposits 22,488 Short-term borrowings 7,488 Other short-term borrowing 2,637 Long-term borrowing 9,736 Equity 2,303 Source: Bloomberg

Table 434: Banco Portugues de Investimento, select financial metrics FY 2009 NIM 1.4 ROA 0.4 ROE 10.5 ROC 1.7 C:I 58.9 Core capital 8.6 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/AAA Issuer rating A-/A1/A+ Cover pool size (€) 4,198,690,970 Number of loans 78,549 Avg loan (€) 53,453 WA original LTV (in %) 65.3 WA current LTV (in %) 56.2 WA seasoning (mths) 59.0 WA remaining term (mths) 162.3 Source: Investor report

Table 436: Public sector covered bond characteristics As at 30 June

2010 S/M/F Covered Bond rating AAA/-/- Issuer rating A-/A1/A+ Cover pool size (€) 294,472,961 Number of loans 459 Avg loan (€) 641,553 Top 10 borrowers (in %) 60.2 Top 50 borrowers (in %) 86.8 WA seasoning (mths) 31.3 WA remaining term (mths) 92.3 Source: Investor report

182



Caixa Económica Montepio Geral Founded as a mutual bank, Montepio offers financial products ranging from savings and retail banking to investment management, insurance and leasing. It is the oldest financial institution in Portugal, and the country’s sixth largest banking institution. It is one of the largest providers of housing and construction mortgage finance in Portugal.

Montepio is fully owned by Montepio Geral Assiciaco Mutualista (MCAM), a private mutual association, a not-for-profit with the aim of promoting social protection and health benefits.


Table 437: Caixa Económica Montepio Geral, select income statement items, €mm FY 2009 Net interest income 323 Provisions for loan losses 0 NII less provisions 323 Commissions & fee income 89 Other operating income 48 Non-interest expense 261 Operating profit (loss) 204 PBT 44 Taxes 0 Net profit (loss) 44 Source: Bloomberg

Table 438: Caixa Económica Montepio Geral, select balance sheet items, €mm FY 2009 Loans to public 14,682 Total Assets 17,245 Deposits 9,181 Short-term borrowings 1,140 Other short-term borrowing 42 Long-term borrowing 381 Equity 986 Source: Bloomberg

Table 439: Caixa Económica Montepio Geral, select financial metrics FY 2009 C:I 54.8 Core capital 9.5 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aa1/AAA Issuer rating -/Baa1/A- Cover pool size (€) 1,346,152,640 Number of loans 23,049 Avg loan (€) 58,404 WA LTV (in %) 54.1 Max LTV (in %) 79.9 WA Seasoning (mths) 84.6 WA remaining term (mths) 285.8 Constant amortization loans (in %) 94.6 Source: Investor report

183



Caixa Geral de Depositos Caixa Geral de Depositos was founded in 1876 as a savings bank and is a public limited company, whose only shareholder is the Portuguese government. The bank also operates outside of Portugal, with the main foreign markets being Brazil and Mexico.

The institution is structured along a number of business lines including commercial banking, investment banking & venture capital, asset management, specialised credit (including Leasing & Factoring and consumer credit); insurance (both life and non-life) and health care.


Table 441: Caixa Geral de Depositos, select income statement items, €mm FY 2009 Net interest income 1,641 Provisions for loan losses 676 NII less provisions 965 Commissions & fee income 592 Other operating income 2,244 Non-interest expense 3,622 Operating profit (loss) 379 PBT 374 Taxes 70 Net profit (loss) 279 Source: Bloomberg

Table 442: Caixa Geral de Depositos, select balance sheet items, €mm FY 2009 Loans to public 77,222 Total Assets 120,985 Deposits 64,256 Short-term borrowings 6,479 Other short-term borrowing 2,232 Long-term borrowing 29,252 Equity 7,157 Source: Bloomberg

Table 443: Caixa Geral de Depositos, select financial metrics FY 2009 NIM 1.5 ROA 0.2 ROE 5.5 ROC 0.8 C:I 76.7 Core capital 8.5 Source: Bloomberg


Table 444: Mortgage covered bond characteristics As at 31 March

2010 S/M/F Covered Bond rating A-/A1/A+ Issuer rating A-/Aa2/A+ Cover pool size (€) 6,796,217,820 Number of loans 160,940 Avg loan (€) 42,228 WA current LTV (in %) 53.7 WA seasoning (mths) 91.9 WA remaining term (yrs) 21.1 LTV breakdown (in %) 0-<=40% 22.3 >40%-<=50% 15.0 >50%-<=60% 19.4 >60%-<=70% 23.3 >70%-<=80% 20.1 Regional breakdown (in%) Lisbon 38.8 North 24.9 Center 22.6 Alentejo 4.6 Algarve 5.0 Azores-Madeira 4.0 Source: Investor report

Table 445: Public sector covered bond characteristics As at 31 March

2010 S/M/F Covered Bond rating A-/A1/A+ Issuer rating A-/Aa2/A+ Cover pool size (€) 1,449,241,276 Number of loans 2,820 Avg loan (€) 513,915 Top 5 regional exposures (in%) Lisbon 15.2 Porto 13.0 Setubal 7.9 Santarem 7.4 Aveiro 6.7 Source: Investor report

184



Santander Totta Banco Santander Totta is part of the Santander Group and offers financial services in Portugal and a number of other countries. The bank operates close to 800 branches, and is the third largest privately owned bank by assets.

The Santander Group is one of the largest financial groups in the world: the fourth by profits and the eighth by market capitalisation in 2009. The group has a strong international presence, with 91 million customers across 9 core markets in Europe and the Americas. While retail banking accounts for the largest share of its profits, the group offers a wide range of products, including corporate and investment banking and asset management.


Table 446: Santander Totta, select income statement items, €mm FY 2009 Net interest income 762 Commissions & fee income 364 Non-interest expense 521 PBT 567 Taxes 87 Net profit (loss) 473 Source: Bloomberg

Table 447: Santander Totta, select balance sheet items, €mm FY 2009 Total Assets 45,681 Equity 2,731 Source: Bloomberg


Table 448: Mortgage covered bond characteristics As at 31 March

2010 S/M/F Covered Bond rating AAA/Aa1/AAA Issuer rating A/A1/AA Cover pool size (€) 1,272,824,597 Number of loans 21,882 Avg loan (€) 51,168 WA current LTV (in %) 60.8% LTV breakdown (in %) 0-<=40% 12.8% >40%-<=50% 11.2% >50%-<=60% 15.7% >60%-<=70% 23.2% >70%-<=80% 37.1% Regional breakdown (in%) Lisbon 27.4% Porto 16.4% Setubal 8.9% Faro 7.6% Other 39.7% Source: Investor Presentation, March 2010

185



Spa

nish

cov

ered

bon

ds

186



Spanish Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of Spanish covered bonds in Figure 126 and Figure 127 respectively.

Figure 126: CB Issuance, €bn

010,00020,00030,00040,00050,00060,00070,00080,000

2003 2004 2005 2006 2007 2008 2009

Public debtMortgages



050,000

100,000150,000200,000250,000300,000350,000400,000

2003 2004 2005 2006 2007 2008 2009

Public debtMortgages


Legislative snapshot We set out below in Table 449 a snapshot of key covered bond attributes for standalone programmes in Spain. In Table 450 we set out a similar overview of the multi-cedula framework.

Table 449: Covered bond overview Attribute Commentary Legislative Framework Special law-based covered bonds. Mortgage Market Law 41/2007, Law 2/1981, Royal

Decree 716/2009, Law 22/2003 Structure of Issuer Issuers are either specialist or universal credit institutions; the collateral is kept on the

balance sheet of the issuer and not transferred to a separate legal entity. Bondholder claims are guaranteed by the entire mortgage book (both residential and commercial mortgage assets) of the lender that is registered in the cover register

Supervision Bank of Spain, Ministry of Economy and Commerce, CNMV (Spanish Securities Commission)

Cover assets Residential mortgages (max 80% LTV) and commercial mortgages (max 60% LTV) in Cedulas Hipotecarias; if there are additional guarantees, LTVs can be raised to 95% and 80% respectively. No loans or part of loans are allowed if LTVs are above limits. Public sector exposures (in Cedulas Territoriales) to EEA countries back public sector covered bonds in the form of loans or credits to central governments, local authorities or public companies linked to such institutions

Valuation Properties are valued by the lender or by a valuation company. If the value of the property falls by over 20%, the lender has the right to ask the extension of the loan to other assets to cover the required the 80% LTV limit; if the borrower does not take any action within two months, the lender can assume that it has decided to repay the loan in full

ALM matching Liabilities have to be no more than 80% of assets for mortgages (70% for public sector covered bonds), with minimum OC set by law (see below). Derivatives are allowed to manage risk

Over-collateralisation Minimum OC of 25% for mortgages and 43% for public sector exposures is legally required. If minimum OC breached, there is a grace period of 10 days for mortgage collateral and 3 months for public sector collateral

Bankruptcy remoteness All assets are recorded on the cover register, no acceleration in case of insolvency of the issuer




187



Table 450: Multi-cedula overview Attribute Commentary Legislative Framework Mortgage Market Law 41/2007, Royal Decree 716/2009, Law 22/2003 Structure of Issuer Multiple participants in a multi-cedula issue covered bonds under the framework set

out in Table 17 above. These CH or CT bonds are then aggregated in an FTA (Fondo Titulización de Activos), or bankruptcy remote vehicle, from which a multi-issuer backed covered bond is issued. The collateral backing the multi-cedula is the individually structured covered bonds, which in turn are backed by the mortgage or public-sector portfolios of the respective contributing institution. The FTA is managed by an SGFT (Sociedad Gestora de Fondo de Titulización), which is registered with CNMV

Supervision CNMV (Spanish Securities Commission) Cover assets The collateral are cedulas with a claim to the issuer and secured by specific

underlying assets (See Table 17 above) Valuation Table 17 above ALM matching Derivatives permitted. The SGFT uses OC, reserve funds, excess spread and liquidity

facilities (similar to features used in a traditional securitisation) to match payments of the underlying pooled cedulas with those of the multi-cedula

Over-collateralisation n/a Bankruptcy remoteness n/a Compliance with EU legislation



188



Spain macro background

Figure 128: Spanish real GDP growth, y-on-y, %

-6-4-202468

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 129: Spanish unemployment level, %

0

5

10

15

20

25

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 130: Spanish CPI and base rate, %

-2-10123456

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 131: Spanish consumer confidence, balance of survey

-50

-40

-30

-20

-10

0

10

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Cons. Confidence

Source: Bloomberg

Figure 132: Spanish house price growth, %

-10%

-5%

0%

5%

10%

15%

20%

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

House price grow th

Source: Bloomberg

Figure 133: Spanish mortgage approvals, #

020,00040,00060,00080,000

100,000120,000140,000

Mar

-03

Sep-

03

Mar

-04

Sep-

04

Mar

-05

Sep-

05

Mar

-06

Sep-

06

Mar

-07

Sep-

07

Mar

-08

Sep-

08

Mar

-09

Sep-

09

Mar

-10

Mortgage approv als

Source: Bloomberg

189



Standalone Programmes Bancaja Caja de Ahorros de Valencia, Castellón y Alicante (Bancaja), is the largest financial institution in the Autonomous Community of Valencia and the third largest savings bank in Spain measured by total assets. Bancaja is itself the result of a merger of five Valencian savings banks, with the Group also including an interest in Banco de Valencia, and holding companies for insurance, valuations, recoveries and real estate.

Following the recent re-structuring of the Spanish savings banks sector, Bancaja is now part of the new Jupiter group, together with Caja Madrid and 5 other smaller cajas (see later section). Bancaja issues CH.


Table 451: Bancaja, select income statement items, €mm FY 2009 Net interest income 1,447 Provisions for loan losses -14 NII less provisions 1,462 Commissions & fee income 346 Other operating income 573 Non-interest expense 1,403 Operating profit (loss) 1,449 PBT 371 Taxes 0 Net profit (loss) 251 Source: Bloomberg

Table 452: Bancaja, select balance sheet items, €mm FY 2009 Loans to public 81,011 Total Assets 111,459 Deposits 50,668 Short-term borrowings 16,449 Other short-term borrowing 1,659 Long-term borrowing 35,015 Equity 5,512 Source: Bloomberg

Table 453: Bancaja, select financial metrics FY 2009 ROA 0.2 ROE 7.2 ROC 0.6 C:I 48.7 Source: Bloomberg


Table 454: Covered bond characteristics As at 31 Mar

2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating -/A3/BBB Cover pool size (€) 31,490,389,535 Outstanding liabilities (in €) 6,678,920,000 Estimated eligible collateral (in €) 13,431,388,120 Current OC (in %) 371.5 Required OC for current rating (in %) 64.0 Residential properties (in %) 36.8 Commercial properties (in %) 63.2 Residential pool overview Number of loans 111,917 Average loan (in €) 103,589 WA seasoning (mths) 30.9 WA remaining term (mths) 348 WA current LTV (in %) 68.4 Second homes (in %) 9.6 Prior ranks (in %) 3.0 Highest regional exposure (in %) Valencia – 46.2 LTV breakdown 0-40% LTV 11.2 41-50% LTV 8.5 51-60% LTV 12.0 61-70% LTV 18.2 71-80% LTV 26.8 >80% LTV 23.3 Commercial pool overview Number of loans 20,886 Average loan (in €) 952,649 WA seasoning (mths) 27.1 WA remaining term (mths) 170.6 WA current LTV (in %) 56.5 Largest 10 loans (in %) 5.2 Largest 10 borrowers (in %) 15.7 Prior ranks (in %) 13.0 Highest regional exposure (in %) Valencia - 47.9 Property type Real estate developers 40.9 Land 35.7 Office 18.5 Industrial 4.9 LTV breakdown 0-40% LTV 22.2 41-50% LTV 12.2 51-60% LTV 17.3 61-70% LTV 27.5 71-80% LTV 13.3 >80% LTV 7.6 Source: Moody’s

190



BBVA Banco Bilbao Vizcaya Argentaria (BBVA) is the second largest Spanish financial institution with a strong international presence. In fact the Group counts more than 35 million customers in 32 countries, with Iberia (34% of revenues) and Latin America (44% of revenues) being the core markets.

The group offers a wide range of financial products to individuals, SMEs and corporates across a number of business units. ‘Businesses in Spain & Portugal’ covers the retail and corporate banking businesses in both countries; while the other units are Wholesale Banking & Asset Management; Mexico; South America and USA. BBVA issued cédulas hipotecarias and territoriales.


Table 455: BBVA, select income statement items, €mm FY 2009 Net interest income 14,325 Provisions for loan losses 5,199 NII less provisions 9,126 Commissions & fee income 5,305 Other operating income 1,553 Non-interest expense 10,540 Operating profit (loss) 6,988 PBT 5,736 Taxes 1,141 Net profit (loss) 4,210 Source: Bloomberg

Table 456: BBVA, select balance sheet items, €mm FY 2009 Real estate loans 148,874 Loans to public 322,475 Total Assets 535,065 Deposits 242,582 Short-term borrowings 75,936 Other short-term borrowing 36,044 Long-term borrowing 117,817 Equity 30,763 Source: Bloomberg

Table 457: BBVA, select financial metrics FY 2009 NIM 3.0 ROA 0.8 ROE 15.3 ROC 1.9 C:I 44.2 Core capital 9.4 Source: Bloomberg


Table 458: Mortgage Covered bond characteristics As at 31 Mar

2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating AA/Aa2/AA- Cover pool size (€) 77,843,427,000 Outstanding liabilities (in €) 35,431,201,806 Current OC (in %) 119.7 Required OC for current rating (in %) 12.5 Residential properties (in %) 70.9 Commercial properties (in %) 29.1 Residential pool overview WA seasoning (mths) 51.5 WA remaining term (mths) 259.8 WA current LTV (in %) n/a <80% LTV 83.3 Second homes (in %) 7.7 Highest regional exposure (in %) Madrid – 20.3 Commercial pool overview WA seasoning (mths) 31.6 WA remaining term (mths) 174.0 WA current LTV (in %) n/a <80% LTV (in %) 94.8 Largest 10 borrowers (in %) 5.2 Highest regional exposure (in %) Andalusia – 21.4 Property type Real estate developers 70.4 Source: Moody’s

Table 459: Public sector Covered bond characteristics As at 31 Mar

2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating AA/Aa2/AA- Cover pool size (€) 23,492,949,012 Outstanding liabilities (in €) 7,716,025,000 Current OC (in %) 204.5 Number of borrowers 3,290 Average exposure (in €) 7,140,714 Exposure to 10 largest borrowers (in %) 26.6 Highest regional exposure (in %) Catalonia – 20.1 Fixed rate assets (in %) 40.5 Borrower type Direct claim against region/municipality 70.6 Claim with guarantee of region/municipality 29.3 Source: Moody’s

191



Banco Pastor Banco Pastor is the seventh largest banking group in Spain and the leader in Galicia, combined with a small international presence. The bank focuses on deposit taking and lending to individuals and SMEs but also offers investment management and pension funds products. It operates a network of over 600 branches throughout Spain.

The largest shareholder is the Fundacion Pedro Burrie de la Maza (a private foundation devoted to promoting the development of Galicia), which holds approximately 40% of the institution’s share capital. Banco Pastor issues cédulas hipotecarias .


Table 460: Banco Pastor, select income statement items, €mm FY 2009 Net interest income 548 Provisions for loan losses 588 NII less provisions -40 Commissions & fee income 181 Other operating income 87 Non-interest expense 456 Operating profit (loss) 120 PBT 131 Taxes 28 Net profit (loss) 101 Source: Bloomberg

Table 461: Banco Pastor, select balance sheet items, €mm FY 2009 Real estate loans 13,447 Loans to public 20,385 Total Assets 32,325 Deposits 13,659 Short-term borrowings 7,303 Other short-term borrowing 1,412 Long-term borrowing 7,983 Equity 1,610 Source: Bloomberg

Table 462: Banco Pastor, select financial metrics FY 2009 NIM 2.0 ROA 0.3 ROE 6.9 ROC 0.7 C:I 37.7 Core capital 10.6 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating -/A3/- Cover pool size (€) 12,173,803,514 Outstanding liabilities (in €) 5,543,100,000 Estimated eligible collateral (in €) 8,373,406,860 Current OC (in %) 119.6 Required OC for current rating (in %) 54.0 Residential properties (in %) 46.2 Commercial properties (in %) 53.8 Residential pool overview Pool balance (in €) 5,619,990,976 Number of loans 48,806 Average loan (in €) 115,150 WA seasoning (mths) 31.2 WA remaining term (mths) 321 WA current LTV (in %) 59.7 Highest regional exposure (in %) Catalonia – 23.2 LTV breakdown 0-40% LTV 21.1 41-50% LTV 10.4 51-60% LTV 13.7 61-70% LTV 18.3 71-80% LTV 32.4 >80% LTV 3.4 Commercial pool overview Pool balance (in €) 6,553,812,538 Number of loans 7,204 Average loan (in €) 909,746 WA seasoning (mths) 24.1 WA remaining term (mths) 160.2 WA current LTV (in %) 48.8 Largest 10 loans (in %) 7.5 Largest 10 borrowers (in %) 16.1 Highest regional exposure (in %) Andalusia – 19.8 LTV breakdown 0-40% LTV 37.7 41-50% LTV 15.0 51-60% LTV 14.5 61-70% LTV 13.3 71-80% LTV 11.6 >80% LTV 7.9 Source: Moody’s

192



Banco Popular Banco Popular is a pure-play retail and commercial bank, with a network of over 2,000 branches and a market share of around 5%.

Banco Popular has recently entered into a JV with Credit Mutuel to create a new bank in Spain, to which the group will contribute €2bn of loans and €1.7bn of AUM.

Banco Popular issues cédulas hipotecarias.


Table 464: Grupo Banco Popular, select income statement items, €mm FY 2009 Net interest income 2,830 Provisions for loan losses 1,520 NII less provisions 1,310 Commissions & fee income 885 Other operating income 139 Non-interest expense 1,485 Operating profit (loss) 1,254 PBT 1,073 Taxes 293 Net profit (loss) 766 Source: Bloomberg

Table 465: Grupo Banco Popular, select balance sheet items, €mm FY 2009 Real estate loans 47,782 Loans to public 88,777 Total Assets 129,290 Deposits 52,908 Short-term borrowings 23,900 Other short-term borrowing 2,107 Long-term borrowing 32,991 Equity 8,448 Source: Bloomberg

Table 466: Grupo Banco Popular, select financial metrics FY 2009 NIM 2.5 ROA 0.6 ROE 11.0 ROC 1.2 C:I 32.9 Core capital 9.1 Source: Bloomberg


Table 467: Covered bond characteristics As at 30 Jun

2010 S/M/F Covered Bond rating AAA/Aaa/AA+ Issuer rating A/Aa3/A Cover pool size (€) 34,149,890,000 Outstanding liabilities (in €) 16,578,000,000 Estimated eligible collateral (in €) 24,420,000,000 Current OC (in %) 206 Residential properties (in %) 54.9 Commercial properties (in %) 45.1 Borrower type Individual 39.3 Real estate developers 19.5 SME and Corporates 41.2 Regional split Andalusia 28 Madrid 15 Castilla Leon and Castilla La Mancha 11 Catalonia 10 Comunidad Valenciana 9 Galicia 7 Other 20 Residential pool overview Number of loans 147,289 WA seasoning (mths) 33.0 WA current LTV (in %) 56.0 Second/holiday homes (%) 9.8 LTV breakdown 0-40% LTV 26.3 41-50% LTV 11.7 51-60% LTV 15.0 61-70% LTV 16.5 71-87% LTV 17.4 >78% LTV 13.1 Commercial pool overview Number of loans 38,652 WA seasoning (mths) 23 WA current LTV (in %) 49.0 Largest 10 loans (in %) Largest 10 borrowers (in %) Highest regional exposure (in %) LTV breakdown 0-40% LTV 35.9 41-50% LTV 14.9 51-60% LTV 15.8 61-70% LTV 14.8 71-77% LTV 7.5 >78% LTV 11.1 Source: Investor Presentation

193



Banco Sabadell Banco Sabadell is Spain’s fourth largest banking group, and offers a wide range of financial products throughout the country via different brands and names.

The group also operates in Africa, Asia and the Americas via a number of branches, representative offices and subsidiaries or part-owned companies. The Group is structured along five business lines: Commercial Banking; Corporate Banking & Global Operations; Markets & Private Banking, BS America and Bancassurance.

Banco Sabadell issues cédulas hipotecarias


Table 468: Banco Sabadell, select income statement items, €mm FY 2009 Net interest income 1,615 Provisions for loan losses 226 NII less provisions 1,390 Commissions & fee income 562 Other operating income 64 Non-interest expense 1,286 Operating profit (loss) 1,028 PBT 571 Taxes 45 Net profit (loss) 522 Source: Bloomberg

Table 469: Banco Sabadell, select balance sheet items, €mm FY 2009 Real estate loans 36,280 Loans to public 63,233 Total Assets 82,823 Deposits 37,407 Short-term borrowings 9,577 Other short-term borrowing 1,303 Long-term borrowing 24,852 Equity 5,297 Source: Bloomberg

Table 470: Banco Sabadell, select financial metrics FY 2009 NIM 2.1 ROA 0.6 ROE 10.8 ROC 1.3 C:I 49.6 Core capital 9.1 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating A/A2/A Cover pool size (€) 22,623,147,229 Outstanding liabilities (in €) 12,438,700,000 Estimated eligible collateral (in €) 16,655,419,300 Current OC (in %) 81.9 Required OC for current rating (in %) 47.5 Residential properties (in %) 41.2 Commercial properties (in %) 58.8 Residential pool overview Number of loans 91,172 Average loan (in €) 102,165 WA seasoning (mths) 45.5 WA current LTV (in %) 55.1 Highest regional exposure (in %) Catalonia - 38.6 Second homes (in %) 16.7 LTV breakdown 0-40% LTV 25.2 41-50% LTV 12.9 51-60% LTV 15.9 61-70% LTV 18.9 71-80% LTV 17.8 >80% LTV 9.2 Commercial pool overview Number of loans 26,330 Average loan (in €) 505,453 WA seasoning (mths) 26.2 WA remaining term (mths) 180.2 WA current LTV (in %) 50.0 Largest 10 loans (in %) 5.8 Largest 10 borrowers (in %) 11.4 Highest regional exposure (in %) Catalonia - 40.3 Property type Real estate developments 34 Office 25 Retail 15 Industrial 8 Hotel 8 Mixed use 5 Land 5 LTV breakdown 0-40% LTV 31 41-50% LTV 16.6 51-60% LTV 20.7 61-70% LTV 20.0 71-80% LTV 8.1 >80% LTV 3.7 Source: Moody’s

194



Banco Santander The Santander Group is one of the largest financial groups in the world: the fourth by profits and the eighth by market capitalisation in 2009.

The group has a strong international presence, with 91 million customers across 9 core markets in Europe and the Americas.

While retail banking accounts for the largest share of its profits, the group offers a wide range of products, including corporate and investment banking and asset management. Banco Santander issues both cédulas hipotecarias and territoriales.


Table 472: Banco Santander, select income statement items, €mm FY 2009 Net interest income 26,735 Provisions for loan losses 11,088 NII less provisions 15,647 Commissions & fee income 10,726 Other operating income 2,785 Non-interest expense 20,996 Operating profit (loss) 10,706 PBT 10,588 Taxes 1,207 Net profit (loss) 8,943 Source: Bloomberg

Table 473: Banco Santander, select balance sheet items, €mm FY 2009 Real estate loans 411,778 Loans to public 650,188 Total Assets 1,110,530 Deposits 468,283 Short-term borrowings 137,864 Other short-term borrowing 257,686 Long-term borrowing 87,586 Equity 73,871 Source: Bloomberg

Table 474: Banco Santander, select financial metrics FY 2009 NIM 2.8 ROA 0.8 ROE 14.2 ROC 2.3 C:I 47.0 Core capital 10.1 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating AA/Aa2/AA Cover pool size (€) 57,174,621,702 Outstanding liabilities (in €) 26,560,000,000 Current OC (in %) 115.3 Required OC for current rating (in %) 15.0 Residential properties (in %) 55.7 Commercial properties (in %) 44.3 Residential pool overview Number of loans 350,736 Average loan (in €) 90,729 Estimated WA current LTV (in %) n/a Second homes (in %) 5.1 Highest regional exposure (in %) Madrid – 21.3 LTV breakdown 0-40% 28.8 41-60% 25.0 61-80% 24.3 >80% 21.7 Commercial pool overview Estimated WA current LTV (in %) n/a Highest regional exposure (in %) Madrid – 24.0 LTV breakdown 0-40% 29.7 41-60% 27.0 61-80% 23.9 >80% 19.4 Source: Moody’s


2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating AA/Aa2/AA Cover pool size (€) 2,000,000,000 Outstanding liabilities (in €) 6,951,935,135 Current OC (in %) 247.6 Average exposure (in €) 6,291,344 Exposure to 10 largest borrowers (in %) 48.3 Highest regional exposure (in %) Andalusia – 16.6 Borrower type Direct claim against region/municipality/federal state 87.7 Claim with guarantee of region/municipality 12.3 Source: Moody’s

195



Banesto Banco Espanol de Credito (Banesto) offer retail banking, SME and corporate lending, factoring and wholesale banking in Spain. The company also offers real estate and insurance products via a number of companies in which it has direct or indirect stakes.

The company, founded in 1902 and based in Madrid is 97% owned by the Santander Group. Retail banking covers a range of banking and specialised financial services for each customer segment served (individuals, personal banking, private banking and SMEs), Corporate Banking and Wholesale Banking include treasury, capital markets, brokerage and international businesses.

Banesto issues cédulas hipotecarias.


Table 477: Banesto, select income statement items, €mm FY 2009 Net interest income 1,731 Provisions for loan losses 381 NII less provisions 1,350 Commissions & fee income 608 Other operating income -33 Non-interest expense 998 Operating profit (loss) 1,564 PBT 1,158 Taxes 334 Net profit (loss) 560 Source: Bloomberg

Table 478: Banesto, select balance sheet items, €mm FY 2009 Loans to public 75,617 Total Assets 122,301 Deposits 57,076 Short-term borrowings 29,980 Long-term borrowing 21-528 Equity 5,933 Source: Bloomberg

Table 479: Banesto, select financial metrics FY 2009 ROE 10.5 C:I 38.9 Core capital 8.7 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating AA/Aa3/AA Cover pool size (€) 33,334,092,067 Outstanding liabilities (in €) 19,004,360,000 Estimated eligible collateral (in €) 25,104,759,560 Current OC (in %) 75.4 Required OC for current rating (in %) 19.5 Residential properties (in %) 77.6 Commercial properties (in %) 22.4 Residential pool overview Pool balance (in €) 24,467,735,660 Number of loans 210,374 Average loan (in €) 116,306 Estimated WA current LTV (in %) n/a Highest regional exposure (in %) Andalusia – 22.5 Second homes (in %) 1.0 LTV breakdown 0-40% LTV 19.3 41-50% LTV 11.7 51-60% LTV 14.4 61-70% LTV 19.1 71-80% LTV 20.5 >80% LTV 15.0 Commercial pool overview Pool balance (in €) 7,054,250,547 Number of loans 7,029 Average loan (in €) 1,003,592 WA remaining term (mths) 111.4 Estimated WA current LTV (in %) n/a Largest 10 borrowers (in %) 17.7 Highest regional exposure (in %) Madrid – 28.3 LTV breakdown 0-40% LTV 21.9 41-50% LTV 10.0 51-60% LTV 20.3 61-70% LTV 18.9 71-80% LTV 15.7 >80% LTV 13.1 Source: Moody’s

196



Bankinter Bankinter, the sixth largest Spanish bank and initially founded as a JV between Santander and Bank of America, provides a range of banking and financial services to individuals, SMEs and corporates in Spain, its core market.

More than 20% of the bank is owned by France’s Credit Agricole. Bankinter issues cédulas hipotecarias.


Table 481: Bankinter, select income statement items, €mm FY 2009 Net interest income 796 Provisions for loan losses 219 NII less provisions 577 Commissions & fee income 271 Other operating income 470 Non-interest expense 1,037 Operating profit (loss) 370 PBT 346 Taxes 92 Net profit (loss) 254 Source: Bloomberg

Table 482: Bankinter, select balance sheet items, €mm FY 2009 Real estate loans 29,153 Loans to public 39,884 Total Assets 54,467 Deposits 16,601 Short-term borrowings 7,583 Other short-term borrowing 1,900 Long-term borrowing 19,620 Equity 2,583 Source: Bloomberg

Table 483: Bankinter, select financial metrics FY 2009 NIM 1.5 ROA 0.5 ROE 11.2 ROC 0.7 C:I 62.2 Core capital 7.4 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating A/A1/A+ Cover pool size (€) 17,216,936,890 Outstanding liabilities (in €) 3,278,910,811 Current OC (in %) 425.1 Required OC for current rating (in %) 53.0 Residential properties (in %) 58.1 Commercial properties (in %) 41.9 Residential pool overview Pool balance (in €) 9,998,407,320 Number of loans 80,244 Average loan (in €) 124,600 WA seasoning (mths) 45.0 WA current LTV (in %) 59.7 Highest regional exposure (in %) Madrid – 36.8 Second homes (in %) 8.5 LTV breakdown 0-40% LTV 20.7 41-50% LTV 12.6 51-60% LTV 15.8 61-70% LTV 17.6 71-80% LTV 20.6 >80% LTV 12.7 Commercial pool overview Pool balance (in €) 7,218,29,570 Number of loans 24,032 Average loan (in €) 300,371 WA seasoning (mths) 34 WA remaining term (mths) 200 WA current LTV (in %) 73.5 Largest 10 borrowers (in %) 4.5 Highest regional exposure (in %) Madrid – 30.6 Property type Other 57.5 Retail 16.6 Land 11.4 Real estate developments 12.4 Office 1.9 LTV breakdown 0-40% LTV 23.9 41-50% LTV 13.0 51-60% LTV 13.5 61-70% LTV 13.0 71-80% LTV 8.8 >80% LTV 27.8 Source: Moody’s

197



Bilbao Bizkaia Kutxa Caja de Ahorros de Bilbao y Vizcaya (BBK) is a savings bank based in the Basque Country, where most of its client base is located. The bank is the product of the merger of Caja de Ahorros Municipal de Bilbao and the Bizkaiko Aurrezki Kutxa-Caja de Ahorros Vizcaína.

The bank issues cédulas hipotecarias.


Table 485: Bilbao Bizkaia Kutxa, select income statement items, €mm FY 2009 Net interest income 490 Provisions for loan losses 158 NII less provisions 332 Commissions & fee income 151 Other operating income 162 Non-interest expense 506 Operating profit (loss) 146 PBT 275 Taxes -18 Net profit (loss) 289 Source: Bloomberg

Table 486: Bilbao Bizkaia Kutxa, select balance sheet items, €mm FY 2009 Real estate loans 15,515 Loans to public 21,178 Total Assets 29,806 Deposits 16,884 Short-term borrowings 4,332 Other short-term borrowing 191 Long-term borrowing 1,263 Equity 4,123 Source: Bloomberg

Table 487: Bilbao Bizkaia Kutxa, select financial metrics FY 2009 NIM 1.8 ROA 1.0 ROE 7.3 ROC 2.5 C:I 61.6 Core Capital 14.6 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating -/A1/A+ Cover pool size (€) 12,996,106,229 Outstanding liabilities (in €) 3,862,900,000 Estimated eligible collateral (in €) 8,226,818,130 Current OC (in %) 236.4 Required OC for current rating (in %) 30.0 Residential properties (in %) 74 Commercial properties (in %) 26 Residential pool overview Pool balance (in €) 9,550,630,529 Average loan (in €) 108,433 WA seasoning (mths) 40.7 WA current LTV (in %) 64.1 Highest regional exposure (in %) Basque – 50.3 Second homes (in %) 4.8 LTV breakdown 0-40% LTV 16.9 41-50% LTV 11.8 51-60% LTV 13.8 61-70% LTV 13.4 71-80% LTV 20.8 >80% LTV 23.2 Commercial pool overview Pool balance (in €) 3,445,475,699 Average loan (in €) 166,601 WA seasoning (mths) 43.3 WA current LTV (in %) 49.6 Highest regional exposure (in %) Basque – 66.0 Property type RED 37 Land 7 Retail 16 Industrial 7 Other 33 LTV breakdown 0-40% LTV 39.9 41-50% LTV 13.5 51-60% LTV 15.1 61-70% LTV 12.8 71-80% LTV 9.5 >80% LTV 9.1 Source: Moody’s

http://en.wikipedia.org/w/index.php?title=Bizkaiko_Aurrezki_Kutxa&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=Caja_de_Ahorros_Vizca%C3%ADna&action=edit&redlink=1

198



Caixa Catalunya

Caxia d’Estalvis de Catalunya is a Barcelona-based savings bank with strong ties to the region of Catalonia, where it is the second largest savings bank in terms of market share. On 1 July 2010 Caixa d’Estalvis de Catalunya, Tarragona i Manresa was established, the outcome of the merger of Caixa Catalunya, Caixa Tarragona and Caixa Manresa, three institutions closely linked to their territories.

Caixa d’Estalvis de Catalunya, Tarragona i Manresa has more than €81 billion in consolidated assets and a network of over 1,200 branches. Local retail banking and personal finance remain at the core of the new institution. Caixa Catalunya issues CH and CT.


Table 489: Caixa Catalunya, select income statement items, €mm FY 2009 Net interest income 869 Provisions for loan losses 33 NII less provisions 836 Commissions & fee income 327 Other operating income 1,344 Non-interest expense 2,091 Operating profit (loss) 563 PBT 75 Taxes -2 Net profit (loss) 79 Source: Bloomberg

Table 490: Caixa Catalunya, select balance sheet items, €mm FY 2009 Real estate loans 33,096 Loans to public 44,381 Total Assets 63,650 Deposits 25,859 Short-term borrowings 26,319 Other short-term borrowing 1,437 Long-term borrowing 2,302 Equity 2,835 Source: Bloomberg

Table 491: Caixa Catalunya, select financial metrics FY 2009 ROA 0.1 ROE 2.9 ROC 0.2 C:I 77.5 Core capital 6.1 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating -/A3/- Cover pool size (€) 21,857,947,017 Outstanding liabilities (in €) 8,383,700,000 Estimated eligible collateral (in €) 13,807,115,530 Current OC (in %) 160.7 Required OC for current rating (in % 69.5 Residential properties (in %) 43.7 Commercial properties (in %) 56.3 Residential pool overview Average loan (in €) 79,325 WA current LTV (in %) 65.5 Highest regional exposure (in %) Catalonia – 63.6 LTV breakdown 0-40% LTV 16.4 41-50% LTV 8.3 51-60% LTV 10.8 61-70% LTV 14.8 71-80% LTV 21.8 >80% LTV 28.3 Commercial pool overview WA current LTV (in %) 58.0 Largest 10 borrowers (in %) 25.7 Highest regional exposure (in %) Catalonia – 43.5 LTV breakdown 0-40% LTV 20.7 41-50% LTV 10.3 51-60% LTV 17.0 61-70% LTV 21.4 71-80% LTV 22.6 >80% LTV 7.9 Source: Moody’s


2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating -/A3/- Cover pool size (€) 1,106,626,318 Outstanding liabilities (in €) 625,000,000 Current OC (in %) 77.1 Exposure to 10 largest borrowers (in %) 25.4 Highest regional exposure (in %) Catalonia – 78.3 Borrower type Direct claim against region/municipality/federal state 84.3 Claim with guarantee of region/municipality 14.7 Source: Moody’s

199



Caja de Ahorros del Mediterraneo Caja de Ahorros del Mediterraneo or CAM is a savings bank with a strong presence in the regions of Valencia and Murcia. It is now part of the new Base group, after merging with Cajastur, Caja Santander y Cantabria and Caja Extremadura.

CAM is the fourth-largest savings bank in Spain by assets. Its core business is offering banking services to individuals and SMEs. CAM is the product of the merger, over the years, of over 30 smaller cajas from the Valencia and Alicante provinces, which remain its core markets. CAM issues both CH and CT.


Table 494: Caja Ahorros Mediterraneo, select income statement items, €mm FY 2009 Net interest income 1,640 Provisions for loan losses 847 NII less provisions 793 Commissions & fee income 211 Other operating income 1,058 Non-interest expense 1,718 Operating profit (loss) 623 PBT 322 Taxes 57 Net profit (loss) 203 Source: Bloomberg

Table 495: Caja Ahorros Mediterraneo, select balance sheet items, €mm FY 2009 Real estate loans 38,478 Loans to public 52,896 Total Assets 75,532 Deposits 40,416 Short-term borrowings 10,731 Other short-term borrowing 433 Long-term borrowing 16,094 Equity 3,806 Source: Bloomberg

Table 496: Caja Ahorros Mediterraneo, select financial metrics FY 2009 NIM 2.3 ROA 0.3 ROE 6.6 ROC 0.9 C:I 53.2 Core Capital 9.1 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating -/A3/BBB+ Cover pool size (€) 30,037,122,065 Outstanding liabilities (in €) 10,886,600,000 Estimated eligible collateral (in €) 21,555,468,000 Current OC (in %) 175.9 Residential properties (in %) 43 Commercial properties (in %) 57 Residential pool overview Pool balance (in €) 13,021,607,913 Average loan (in €) 74,765 WA current LTV (in %) 60.9 Highest regional exposure (in %) Valencia – 46.8 LTV breakdown 0-40% LTV 23.0 41-50% LTV 12.4 51-60% LTV 13.1 61-70% LTV 14.8 71-80% LTV 19.4 >80% LTV 17.4 Commercial pool overview Pool balance (in €) 17,015,514,152 Average loan (in €) 175,933 WA seasoning (mths) 30.7 WA current LTV (in %) 57.6 Highest regional exposure (in %) Valencia – 41.1 LTV breakdown 0-40% LTV 23.5 41-50% LTV 11.4 51-60% LTV 15.2 61-70% LTV 19.3 71-80% LTV 19.2 >80% LTV 10.5 Source: Moody’s


2010 S/M/F Covered Bond rating -/Aaa/- Cover pool size (€) 913,023,000 Outstanding liabilities (in €) 400,000,000 Current OC (in %) 128.3 Average exposure (in €) 3,169,751 Exposure to 10 largest borrowers (in %) 49.4 Highest regional exposure (in %) Valencia – 61.1 Borrower type Direct claim against region/municipality/federal state 81.7 Other 18.3 Source: Moody’s

200



Caja Madrid

Caja Madrid is the fourth largest Spanish financial group and offers a wide range of products and services for retail, business and private banking clients. The bank also has an international presence with four Caja Madrid branches in Lisbon, Dublin, Miami and Vienna. In addition, via Cibeles, the bank has investments in City National Bank of Florida and Hipotecaria Su Casita in Mexico.

Following the recent re-structuring of the Spanish savings banks sector, the bank is now part of the new Jupiter group. Caja Madrid issues both CH and CT.


Table 499: Caja Madrid, select income statement items, €mm FY 2009 Net interest income 2,651 Provisions for loan losses 1,294 NII less provisions 1,357 Commissions & fee income 888 Other operating income 171 Non-interest expense 2,050 Operating profit (loss) 965 PBT 364 Taxes 97 Net profit (loss) 266 Source: Bloomberg

Table 500: Caja Madrid, select balance sheet items, €mm FY 2009 Real estate loans 73,460 Loans to public 128,619 Total Assets 191,905 Deposits 86,285 Short-term borrowings 21,307 Other short-term borrowing 10,842 Long-term borrowing 57,330 Equity 10,298 Source: Bloomberg

Table 501: Caja Madrid, select financial metrics FY 2009 NIM 1.6 ROA 0.1 ROE 2.6 ROC 0.3 C:I 46.1 Core capital 8.9 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/AA+ Issuer rating A-/A1/A Cover pool size (€) 68,341,391,319 Outstanding liabilities (in €) 31,941,300,000 Current OC (in %) 114 Residential properties (in %) 72.7 Commercial properties (in %) 27.3 Residential pool overview Average loan (in €) 100,566 WA current LTV (in %) 64.0 Highest regional exposure (in %) Madrid – 43.5 LTV breakdown 0-40% LTV 15.1 41-50% LTV 10.3 51-60% LTV 13.8 61-70% LTV 17.9 71-80% LTV 25.4 >80% LTV 17.5 Commercial pool overview WA current LTV (in %) 62.2 Highest regional exposure (in %) Madrid – 38.5 Real estate developments 76.7 LTV breakdown 0-40% LTV 16.6 41-50% LTV 9.6 51-60% LTV 17.0 61-70% LTV 23.4 71-80% LTV 18.2 >80% LTV 15.2 Source: Moody’s


2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating A-/A1/A Cover pool size (€) 2,994,327,792 Outstanding liabilities (in €) 1,525,000,000 Current OC (in %) 96.3 Average exposure (in €) 5,271,704 Exposure to 10 largest borrowers (in %) 41.6 Highest regional exposure (in %) Madrid – 43.2 Borrower type Direct claim against region/municipality/federal state 72.4 Claim with guarantee of region/municipality 27.6 Source: Moody’s

201



Cajamar Cajamar is the result of the fusion of the Rural Savings banks of Almería and Málaga, Caja Rural del Duero and the incorporation of the co-operatives Campo de Cartagena and Grumeco. It is the largest bank in the Grupo Cooperativo Cajamar, which provides banking services across Spain. It is the 16th largest bank in Spain, reaching over 2.5mm customers via just under a thousand branches.

Cajamar issues cédulas hipotecarias.


Table 504: Cajamar, select income statement items, €mm FY 2009 Net interest income 546 Provisions for loan losses 200 NII less provisions 345 Commissions & fee income 100 Other operating income 36 Non-interest expense 389 Operating profit (loss) 125 PBT 70 Taxes 5 Net profit (loss) 66 Source: Bloomberg

Table 505: Cajamar, select balance sheet items, €mm FY 2009 Real estate loans 19,073 Loans to public 24,188 Total Assets 27,679 Deposits 20,314 Short-term borrowings 1,649 Other short-term borrowing 6 Long-term borrowing 3,029 Equity 2,212 Source: Bloomberg

Table 506: Cajamar, select financial metrics FY 2009 NIM 2.2 ROA 0.2 ROE 3.3 ROC 1.0 C:I 53.6 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating -/A3/A Cover pool size (€) 12,620,782,442 Outstanding liabilities (in €) 3,332,800,000 Estimated eligible collateral (in €) 7,425,478,000 Current OC (in %) 278.7 Required OC for current rating (in %) 46.5 Residential properties (in %) 52 Commercial properties (in %) 48 Residential pool overview Pool balance (in €) 6,528,546,794 Average loan (in €) 91,938 WA seasoning (mths) 32.8 WA current LTV (in %) 60.1 Highest regional exposure (in %) Andalusia - 45.5 Second homes (in %) 12.4 LTV breakdown 0-40% LTV 17.7 41-50% LTV 10.9 51-60% LTV 14.4 61-70% LTV 18.5 71-80% LTV 29.6 >80% LTV 8.9 Commercial pool overview Pool balance (in €) 6,038,235,649 Average loan (in €) 331,972 WA seasoning (mths) 33.5 WA current LTV (in %) 56.4 Highest regional exposure (in %) Andalusia – 60.2 Property type Real Estate Developers 45 Land 27 Retail 16 Other 12 LTV breakdown 0-40% LTV 33.9 41-50% LTV 14.3 51-60% LTV 19.8 61-70% LTV 15.9 71-80% LTV 7.7 >80% LTV 8.4 Source: Moody’s

202



Ibercaja Caja de Ahorros y Monte de Piedad de Zaragoza, Aragon y Rioja (Ibercaja) is based in the Aragon region. Ibercaja offers traditional retail banking products to individuals and SMEs. Despite enjoying a strong position in the northern regions that constitute its core markets, it only has a 2.1% share of the Spanish lending and deposits markets.

Ibercaja issues cédulas hipotecarias.


Table 508: Ibercaja, select income statement items, €mm FY 2009 Net interest income 694 Provisions for loan losses 174 NII less provisions 520 Commissions & fee income 219 Other operating income 38 Non-interest expense 563 Operating profit (loss) 292 PBT 182 Taxes 39 Net profit (loss) 144 Source: Bloomberg

Table 509: Ibercaja, select balance sheet items, €mm FY 2009 Real estate loans 27,532 Loans to public 33,356 Total Assets 44,691 Deposits 28,205 Short-term borrowings 1,579 Other short-term borrowing 144 Long-term borrowing 7,207 Equity 2,704 Source: Bloomberg

Table 510: Ibercaja, select financial metrics FY 2009 ROA 0.3 ROE 5.5 ROC 1.7 C:I 54.1 Core Capital 8.8 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating A/A2/- Cover pool size (€) 22,051,864,981 Outstanding liabilities (in €) 5,875,000,000 Estimated eligible collateral (in €) 14,900,762,500 Current OC (in %) 275.4 Required OC for current rating (in %) 39.5 Residential properties (in %) 66 Commercial properties (in %) 34 Residential pool overview Pool balance (in €) 14,453,663,583 Average loan (in €) 82,481 WA seasoning (mths) 36.4 WA current LTV (in %) 60.2 Highest regional exposure (in %) Madrid – 28.3 Second homes (in %) 5.2 LTV breakdown 0-40% LTV 17.8 41-50% LTV 10.3 51-60% LTV 14.4 61-70% LTV 18.4 71-80% LTV 29.8 >80% LTV 9.4 Commercial pool overview Pool balance (in €) 7,598,201,398 Average loan (in €) 263,005 WA seasoning (mths) 36.3 WA current LTV (in %) 58.1 Highest regional exposure (in %) Aragon – 22.8 Property type RED 45 Land 25 Retail 6 Industrial 4 Other 21 LTV breakdown 0-40% LTV 18.7 41-50% LTV 12.0 51-60% LTV 18.2 61-70% LTV 21.6 71-80% LTV 21.0 >80% LTV 8.5 Source: Moody’s

203



La Caixa The Caja de Ahorros y Pensiones de Barcelona, (La Caixa), is currently the leading savings bank in Spain and the third largest financial entity in the country.

Operating as a universal bank, La Caixa offers retail and corporate banking services as well as investing directly in company holdings. In fact, via its vehicle Criteria CaixaCorp, the bank has a large portfolio of industrial holdings in companies involved in the infrastructures, energy and communications sectors, among others.

After the restructuring of the Spanish cajas sector, La Caixa and Caixa Girona have merged in the new Caixa group. La Caixa issues CH and CT.


Table 512: La Caixa, select income statement items, €mm FY 2009 Net interest income 4,331 Provisions for loan losses 1,902 NII less provisions 2,429 Commissions & fee income 1,530 Other operating income 1,190 Non-interest expense 4,401 Operating profit (loss) 880 PBT 1,868 Taxes 35 Net profit (loss) 1,510 Source: Bloomberg

Table 513: La Caixa, select balance sheet items, €mm FY 2009 Loans to public 171,137 Total Assets 271,873 Deposits 134,841 Short-term borrowings 25,918 Other short-term borrowing 10,544 Long-term borrowing 53,319 Equity 21,403 Source: Bloomberg

Table 514: La Caixa, select financial metrics FY 2009 ROA 0.6 ROE 8.7 ROC 1.9 C:I 60.0 Source: Bloomberg



2010 S/M/F Covered Bond rating AAA/Aaa/- Issuer rating AA-/Aa2/AA- Cover pool size (€) 108,512,700,210 Outstanding liabilities (in €) 35,122,240,526 Current OC (in %) 209.0 Required OC for current rating (in % 11.5 Residential properties (in %) 68.0 Commercial properties (in %) 32.0 Residential pool overview Pool balance (in €) 73,841,143,154 Average loan (in €) 84,856 Highest regional exposure (in %) Catalonia – 34.6 LTV breakdown 0-40% LTV 15.9 41-50% LTV 10.9 51-60% LTV 14.7 61-70% LTV 21.2 71-80% LTV 23.8 >80% LTV 13.5 Commercial pool overview Pool balance (in €) 34,671,557,056 Highest regional exposure (in %) Madrid – 24.6 Real estate developments 50.0 Land 26.3 LTV breakdown 0-40% LTV 16.5 41-50% LTV 12.9 51-60% LTV 19.3 61-70% LTV 27.1 71-80% LTV 14.6 >80% LTV 9.6 Source: Moody’s


2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating AA-/Aa2/AA- Cover pool size (€) 7,982,963,428 Outstanding liabilities (in €) 1,700,000,000 Current OC (in %) 369.6 Average exposure (in €) 6,038,550 Exposure to 10 largest borrowers (in %) 42.8 Highest regional exposure (in %) Catalonia – 41.6 Borrower type Direct claim against region/municipality/federal state 70.4 Claim with guarantee of region/municipality 29.6 Source: Moody’s

204



Santander Consumer Finance Santander Consumer Finance is a leading consumer finance company present in 17 countries: Austria, Belgium, the Czech Republic, Denmark, Finland, Germany, Italy, Netherlands, Norway, Poland, Portugal, Russia, the Slovak Republic, Spain, Sweden, UK and USA.

The company is part of the Santander Group, one of the largest financial groups in the world (see separate profile), and offers its products mainly though point of sales but also branches, internet and telemarketing platforms.

Santander Consumer Finance issues cédulas hipotecarias.


Table 517: Santander Consumer Finance, select income statement items, €mm FY 2009 Net interest income 1,910 Provisions for loan losses 109 NII less provisions 1,801 Commissions & fee income 979 Other operating income 165 Non-interest expense 2,721 Operating profit (loss) 234 PBT 250 Taxes 99 Net profit (loss) 106 Source: Bloomberg

Table 518: Santander Consumer Finance, select balance sheet items, €mm FY 2009 Loans to public 50,915 Total Assets 61,663 Deposits 17,896 Short-term borrowings 21,043 Other short-term borrowing 3331 Long-term borrowing 13,419 Equity 4,774 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating (Santander Group) AA/Aa2/AA Cover pool size (€) 2,669,671,145 Outstanding liabilities (in €) 1,350,000,000 Estimated eligible collateral (in €) 2,184,300,000 Current OC (in %) 97.8 Required OC for current rating (in %) 26.0 Residential properties (in %) 97.4 Commercial properties (in %) 2.6 Residential pool overview Pool balance (in €) 2,601,110,957 Average loan (in €) 79,276 WA seasoning (mths) 52.9 WA current LTV (in %) 322.4 Highest regional exposure (in %) Andalusia – 35.1 Second homes (in %) 0.4 LTV breakdown 0-40% LTV 13.7 41-50% LTV 8.7 51-60% LTV 10.5 61-70% LTV 16.6 71-80% LTV 23.6 >80% LTV 26.8 Source: Moody’s

205



Unicaja Montes de Piedad y Caja de Ahorros de Ronda, Cádiz, Almería, Málaga y Antequera (Unicaja) is a Malaga-based savings bank with a strong regional presence in Andalusia.

Unicaja issues cédulas hipotecarias.


Table 520: Unicaja, select income statement items, €mm FY 2009 Net interest income 756 Provisions for loan losses 398 NII less provisions 358 Commissions & fee income 150 Other operating income 50 Non-interest expense 504 Operating profit (loss) 311 PBT 231 Taxes 26 Net profit (loss) 205 Source: Bloomberg, Unicaja 2009 Annual Report

Table 521: Unicaja, select balance sheet items, €mm FY 2009 Real estate loans 457 Loans to public 23,955 Total Assets 34,185 Deposits 23,815 Short-term borrowings 1,591 Other short-term borrowing 81 Long-term borrowing 5,033 Equity 2,908 Source: Bloomberg, Unicaja 2009 Annual Report

Table 522: Unicaja, select financial metrics FY 2009 ROA 1 ROE 7 ROC 2 C:I 42 Source: Bloomberg, Unicaja 2009 Annual Report



2010 S/M/F Covered Bond rating -/Aaa/- Issuer rating -/Aa3/A+ Cover pool size (€) 16,124,796,116 Outstanding liabilities (in €) 8,345,100,000 Estimated eligible collateral (in €) 12,809,728,500 Current OC (in %) 93.2 Required OC for current rating (in %) 23.0 Residential properties (in %) 68 Commercial properties (in %) 32 Residential pool overview Pool balance (in €) 11,050,306,630 Average loan (in €) 73,816 WA seasoning (mths) 50.0 WA current LTV (in %) 58.7 Highest regional exposure (in %) Andalusia – 93.8 Second homes (in %) 4.4 LTV breakdown 0-40% LTV 18.1 41-50% LTV 12.0 51-60% LTV 15.8 61-70% LTV 20.0 71-80% LTV 29.5 >80% LTV 4.5 Commercial pool overview Pool balance (in €) 5,074,489,486 Average loan (in €) 213,726 WA seasoning (mths) 43.0 WA current LTV (in %) 50.3 Highest regional exposure (in %) Andalusia – 89.9 Property type RED 40.2 Land 20.2 Retail 10.2 Industrial 5.4 Office 2.2 Other 21.8 LTV breakdown 0-40% LTV 30.3 41-50% LTV 18.0 51-60% LTV 19.3 61-70% LTV 18.0 71-80% LTV 9.9 >80% LTV 4.4 Source: Moody’s

206



Multi-Cedulas Multi-cedulas take a portfolio of mortgage or public-sector backed Spanish covered bonds (CH or CT) issued by a small group of Spanish financial institutions (predominantly savings banks), and uses broadly similar structural features as in an RMBS deal (over-collateralisation, liquidity facilities and rating agency approaches) to package these individual bonds into a combined, multi-cedula issue.

Each outstanding series of multi-cedula is backed by a different pool of underlying CH, with each CH being a full-recourse obligation of the individual issuer. The underlying CH, as if directly holding a single-issue cedula, are backed by the issuing bank’s entire mortgage pool. In the ABS world, there are also multi-seller Spanish RMBS backed by partial collateral pools contributed by a similarly small number of institutions. In fact there is a high degree of overlap between multi-cedula issuers and multi-seller RMBS participants.

Despite their ostensible similarities, there are, however, some differences between multi-cedulas and RMBS. In a multi-cedula transaction, investors are backed by a portfolio of CH that remains static throughout the life of the transaction, (although the underlying collateral backing these CH bonds changes over time).

Where the two secured funding forms diverge however is in the revolving nature of the underlying pools. Under a multi-cedula, the ‘static’ CH in the transaction are each backed by a ‘dynamic’ pool of mortgage collateral on each individual issuer's balance sheet. In a multi-seller RMBS, the initial contributed collateral pools from each institution are static.

Furthermore, multi-cedulas are of a bullet nature and, being a covered bond, are full-recourse obligations of the issuer, collateralised by a pool of mortgages or loans. As in other securitisations, Spanish RMBS are not an obligation of the originator, but rather of the issuing vehicle (typically an SPV). Should the collateral pool prove insufficient to redeem outstanding bonds, then junior bondholders (in reverse order up the capital stack) will incur principal losses. Should underlying mortgages in the covered bond collateral pool default, however, the obligation remains on the issuing institution to repay the bond in full, with credit risk on the collateral pool only passing to investors on default of the issuing institution.

A chain is however only as strong as its weakest link, and this is also true of any multi-cedula. Ratings (and by derivation, bond pricing) is therefore consider the weakest/lowest rated contributing caja. Poor performance of the issuing entity, or in the collateral pools backing the individual bonds, therefore naturally affects the ratings of the multi-cedulas. In the ABS space, only the performance of the pool affects ratings (ignoring any potential effects if the issuer was also a counterparty to the transaction).

This link has become even more evident of late, with the great majority of these institutions to be merged or forced into institutional protection systems (see section below on new groups); as a consequence of this restructuring, S&P has recently placed 53 multi-cedulas transactions on creditwatch negative, on the basis that the resulting increased concentration may result in insufficient liquidity lines available to the bonds.

Table 524: Multi-cedulas affected by S&P rating actions Programme Series S&P rating AyT Cedulas Territoriales II A, IV A AAA Watch Neg AyT Cedulas Cajas Global I to XXVI, ex XV

and XVII AAA Watch Neg

AyT Cedulas Cajas III to X AAA Watch Neg CEDULAS TDA 2, 3, 5 to 10, 12,

15, 17 to 20 AAA Watch Neg

Cedulas GBP 2 and 3 AAA Watch Neg Programa Independiente de Titulizacion de Cedulas Hipotecarias

1 AAA Watch Neg

IM Cedulas 1 to 5 AAA Watch Neg IM Master Cedulas A AAA Watch Neg Programa Cedulas TDA A1 to A6 ex A2 AAA Watch Neg Source: Standard and Poor’s

Programmes There are 7 multi-cedulas programmes, although one (IM Cedulas GBP) is entirely made up of collateral from Grupo Banco Popular companies so we will exclude it from our analysis.

Of the remaining six programmes, only one is a public sector multi-cedula (AyT Cedulas Territoriales), while the remaining five are backed by mortgage collateral.

Overall, outstanding bonds (for which we could find a collateral split by lender) total €145bn, of which only €2bn are multi-cedulas-territoriales (in addition, the GBP platform account for another €7bn). The largest programme is AyT Cedulas Cajas Global with an outstanding amount of €48bn, followed by Cedulas TDA (€42bn) and AyT Cedulas Cajas (€30bn).

207



Largest contributors Participation in multi-cedulas programmes is quite widespread, with 56 cajas contributing to issuance and no individual lender accounting for more than 7% of total collateral.

Below is a review of the top contributors to multi-cedulas collateral pools:

Caja Madrid Caja Madrid is the fourth largest Spanish financial group and offers a wide range of products and services for retail, business and private banking clients (see individual profile for more details). Caja Madrid contributes approximately 7% of overall multi-cedula collateral, mostly through recent Cedulas TDA issues.

Caja Ahorros Mediterraneo (CAM) CAM is one of the oldest cajas, with a 133 years history and over 1,060 branches. After the restructuring of the Spanish cajas system in the summer of 2010, it merged with Caja Asturias, Caja Santander y Cantabria and Caja Extremadura into the new Base group (see next section). Overall, it accounts for around 6% of all outstanding multi-cedula collateral. It is a particularly frequent contributor to AyT Cedulas Cajas Global and AyT Cedulas Cajas, although it provides on average 15% of the collateral in four Cedulas TDA issues.

Cajastur Cajastur, which took over Caja Castilla La Mancha as the latter tried to avoid bankruptcy, accounts for almost 5% of outstanding multi-cedula collateral (3.6% is from CCM and 1.2% from Cajastur). Together with CAM, Caja Santander y Cantabria and Caja Extremadura, it is now part of the Base group (see next section).

Unicaja Unicaja is the result of the merger, throughout the years, of several smaller cajas: Ronda, Cadiz, Almeria, Malaga, Antequera and Jaen. It operates through almost 1,000 branches in 17 Spanish provinces and a few foreign offices. Unicaja accounts for 4.5% of all multi-cedulas issuance and is also a stand-alone issuer.

Caja Sol Caja Sol is the result of the merger in 2007 of a number of smaller lenders. It contributes to around 4% of all outstanding multi-cedula collateral and has a relatively evenly spread presence throughout the different programmes. Caja Sol merged with Caja Guadalajara as

part the restructuring of the cajas system in 2010 but maintained its brand (see next section).

Ibercaja, Caixa Penedes and Caixa Galicia Each of these contribute to around 3% of the total outstanding multi-cedulas volumes. While Caixa Penedes and Ibercaja are independent lenders, Caixa Galicia is now part of the Breogan group, following the restructuring of the Spanish cajas system (see below).

New groups The Spanish banking system is undergoing a phase of significant change and restructuring. The past strong economic growth and the focus of these regional lenders on the real estate sector have altered their traditional banking model and made them over-reliant on the wholesale markets. As the Spanish economy and housing market contracted over the past three years, the cajas system faced significant funding and capital problems (effectively, the capital base of these institutions is the volume of retained earnings, with very little or no access to equity-like instruments, such as non-voting shares called 'cuotas participativas', which have had limited success). One of the solutions taken to curtail difficulties in a number of the savings banks was to integrate them in the form of mergers or via the creation of institutional protection systems (or IPS, where a central common institution is created and charged with taking key management decisions for the cajas that took part to the agreement - this is fundamentally the same as a merger, as the parties will support each other in terms of solvency and liquidity and will share profits).

These measures have significantly changed the make-up of the sector: of the 45 Spanish cajas, 39 are involved in merger/IPS processes, resulting in 12 new institutions. Of these, 7 requested aid from the FROB (Fund for the Orderly Restructuring of the Banking system), totalling €10.2bn. The six institutions not involved in the aggregation account for just 8% of the caja sector's assets.

Below are quick descriptions of the new groups and their contributions to the outstanding multi-cedulas.

Júpiter This new caja has been formed by the merger of Caja Madrid, Bancaja, Caixa Laietana, Caja Insular de Canarias, Caja Ávila, Caja Segovia and Caja La Rioja.

208



The group accounts for 17% of outstanding multi-cedula collateral, with a particularly significant contribution to the TDA programmes.

Caixa Merger of La Caixa and Caixa d’Estalvis de Girona. Very limited participation in multi-cedulas programmes.

Base Formed by the merger of CAM, Caja Asturias, Caja Santander y Cantabria and Caja Extremadura. It is a relatively large contributor to a number of multi-cedulas, in particular Ayt programmes (Ayt Cedulas Cajas, AyT Cedulas Territoriales, AyT Cedulas Cajas Globales); in total Base contributes the second largest share, 13%, to the outstanding amount of multi-cedula collateral.

Diada Caixa Catalunya and Caixa Manresa merged with Caixa Tarragona to form Diada, whose largest contribution to any multi-cedulas programme is a 6% overall participation in the TDA Cedulas series.

Breogán Breogán came to life after the merger of Caja Galicia and Caixanova. Despite the small number of lenders included, it is a relatively large contributor to AyT series of multi-cedulas.

Mare Nostrum Caja Murcia, Caixa Penedes, Sa Nostra and Caja Granada are the original cajas joined under the new brand. The group is a regular contributor to multi-cedulas issuance and accounts for 10% of the total outstanding bonds.

Espiga The new Caja Espiga is the product of the merger of Caja Duero and Caja España. Jointly, these two lenders contribute to 6% of outstanding bonds, with particular concentration in the AyT Cedulas Territoriales programme.

Banca Civica One of the mergers that did not require any financial aid, Banca Civica is formed by Caja Navarra, Caja Burgos and Caja Canarias. These lenders regularly issue via multi-cedulas, mostly out of AyT platforms.

Caja Sol Caja Sol and Caja Guadalajara merged into Caja Sol, whose contributions to multi-cedulas issuance is rather

widespread across programmes but only totals 4% of outstanding volumes.

Unnim The result of the merger of Caixa Sabadell, Caixa Terrassa and Caixa Manlleu, Unnim's contribution to multi-cedulas amounts to 5%.

Caja3 Caja Circulo, Caja Badajoz and Caja Aragon joined forces under the new Caja3 brand, a small participant in multi-cedulas programmes.

Deal overviews The following tables summarise the contribution to each multi-cedula of the individual cajas in Table 525 and Table 526 (where this split was made available) and of the new groups (Table 527).

209



Table 525: Multi-cedula contributors by pre-merger institutions (Bancaja to Caixa Tarragona), % of collateral

Ban

caja

Caix

a Laie

tana

Caix

a Pen

edés

Caix

a Sab

adell

Caja

Gra

nada

Caja

Gu

adala

jara

Caja

La R

ioja

CCM

(C

ajast

ur)

Banc

a Mar

ch

Banc

o de

Va

lencia

Ba

nco

Espi

rito

Sant

o

Banc

o Ga

llego

Banc

o Gu

ipuz

coan

o

Banc

o Pa

stor

Banc

o Po

pular

Es

pano

l Ba

nco

Popu

lar

Hipo

teca

rio

(BPE

)Ba

nkin

ter

Bank

pim

e

BBK

C.C.

O. B

urgo

s

CAI

Caixa

Cat

aluña

Caixa

Gali

cia

Caixa

Giro

na

Caixa

Man

lleu

Caixa

Man

resa

Caixa

On

tinye

nt

Caixa

Pol

lenca

Caixa

Ta

rrago

na

AyT Cedulas Cajas I 1 4 1 7 7 1 1 7 AyT Cedulas Cajas III 4 6 4 4 4 5 1 4 AyT Cedulas Cajas IV 3 3 3 2 4 10 1 1 2 AyT Cedulas Cajas V 6 5 2 5 10 2 5 2 AyT Cedulas Cajas VI 10 5 3 1 9 3 2 1 AyT Cedulas Cajas VII 6 14 9 3 3 AyT Cedulas Cajas VIII 2 10 2 1 1 7 10 3 1 0 2 AyT Cedulas Cajas IX 6 3 5 2 0 6 4 4 2 2 1 AyT Cedulas Cajas X 5 5 6 4 21 CEDULAS TDA 1 17 CEDULAS TDA 2 8 3 15 4 CEDULAS TDA 3 15 15 3 4 4 CEDULAS TDA 5 14 8 6 5 CEDULAS TDA 6 8 20 2 4 CEDULAS TDA 7 13 9 2 5 CEDULAS TDA 9 16 3 16 5 CEDULAS TDA 10 16 6 16 10 CEDULAS TDA 11 50 25 CEDULAS TDA 12 22 9 22 9 CEDULAS TDA 13 23 1 14 2 5 23 2 CEDULAS TDA 14 CEDULAS TDA 15 1 10 3 24 1 0 CEDULAS TDA 17 15 15 26 CEDULAS TDA 18 17 17 3 25 CEDULAS TDA 19 33 33 CEDULAS TDA 20 IM Cedulas 2 12 17 27 10 IM Cedulas 3 9 8 8 5 IM Cedulas 4 24 10 5 IM Cedulas 5 20 8 4 IM Cedulas M1 12 6 IM Cedulas 7 20 IM Cedulas 9 20 6 IM Cedulas 10 19 8 15 8 15 IM Cedulas 14

210



Ban

caja

Caix

a Laie

tana

Caix

a Pen

edés

Caix

a Sab

adell

Caja

Gra

nada

Caja

Gu

adala

jara

Caja

La R

ioja

CCM

(C

ajast

ur)

Banc

a Mar

ch

Banc

o de

Va

lencia

Ba

nco

Espi

rito

Sant

o

Banc

o Ga

llego

Banc

o Gu

ipuz

coan

o

Banc

o Pa

stor

Banc

o Po

pular

Es

pano

l Ba

nco

Popu

lar

Hipo

teca

rio

(BPE

)Ba

nkin

ter

Bank

pim

e

BBK

C.C.

O. B

urgo

s

CAI

Caixa

Cat

aluña

Caixa

Gali

cia

Caixa

Giro

na

Caixa

Man

lleu

Caixa

Man

resa

Caixa

On

tinye

nt

Caixa

Pol

lenca

Caixa

Ta

rrago

na

Ayt Cedulas Territoriales Cajas 2 11 23 15 Ayt Cedulas Territoriales Cajas 3 11 22 Ayt Cedulas Territoriales Cajas 4 5 4 IM CEDULAS GBP 1 85 15 CEDULAS GBP 2 86 14 CEDULAS GBP 3 87 14 AyT Cedulas Cajas Global - Series 1 3 6 7 1 0 1 4 1 16 4 1 1 AyT Cedulas Cajas Global - Series 2 5 4 8 7 0 3 1 1 8 1 1 0 AyT Cedulas Cajas Global - Series 3 4 7 3 2 0 6 1 9 2 2 7 AyT Cedulas Cajas Global - Series 4 8 8 4 6 AyT Cedulas Cajas Global - Series 5 10 20 3 20 5 3 AyT Cedulas Cajas Global - Series 6 13 5 7 2 AyT Cedulas Cajas Global - Series 7 10 10 5 20 5 AyT Cedulas Cajas Global - Series 8 7 6 0 2 13 2 11 AyT Cedulas Cajas Global - Series 9 6 15 4 23 AyT Cedulas Cajas Global - Series 10 13 6 9 5 6 6 AyT Cedulas Cajas Global - Series 11 8 16 2 12 2 AyT Cedulas Cajas Global - Series 12 10 15 3 3 AyT Cedulas Cajas Global - Series 13 6 6 2 3 AyT Cedulas Cajas Global - Series 14 24 6 AyT Cedulas Cajas Global - Series 16 7 4

211



Ban

caja

Caix

a Laie

tana

Caix

a Pen

edés

Caix

a Sab

adell

Caja

Gra

nada

Caja

Gu

adala

jara

Caja

La R

ioja

CCM

(C

ajast

ur)

Banc

a Mar

ch

Banc

o de

Va

lencia

Ba

nco

Espi

rito

Sant

o

Banc

o Ga

llego

Banc

o Gu

ipuz

coan

o

Banc

o Pa

stor

Banc

o Po

pular

Es

pano

l Ba

nco

Popu

lar

Hipo

teca

rio

(BPE

)Ba

nkin

ter

Bank

pim

e

BBK

C.C.

O. B

urgo

s

CAI

Caixa

Cat

aluña

Caixa

Gali

cia

Caixa

Giro

na

Caixa

Man

lleu

Caixa

Man

resa

Caixa

On

tinye

nt

Caixa

Pol

lenca

Caixa

Ta

rrago

na

AyT Cedulas Cajas Global - Series 18 13 AyT Cedulas Cajas Global - Series 19 10 8 7 6 6 12 AyT Cedulas Cajas Global - Series 20 7 2 5 2 5 1 2 3 5 AyT Cedulas Cajas Global - Series 21 7 2 5 2 5 1 2 3 5 AyT Cedulas Cajas Global - Series 22 4 6 2 9 2 1 6 3 2 2 3 AyT Cedulas Cajas Global - Series 23 7 9 2 4 7 17 9 0 AyT Cedulas Cajas Global - Series 24 10 14 7 AyT Cedulas Cajas Global - Series 25 31 AyT Cedulas Cajas Global - Series 26 40 Programa Cedulas TDA - Class A1 6 4 Programa Cedulas TDA - Class A3 17 13 9 Programa Cedulas TDA - Class A4 6 4 9 4 Programa Cedulas TDA - Class A5 27 8 Programa Cedulas TDA - Class A6 5 3 14 4

Source: J.P. Morgan Covered Bond Research, Investor reports

212



Table 526: Multi-cedula contributors by pre-merger institutions (Caixa Terrassa to Unicaja), % of collateral

Caixa

Ter

rass

a

Caixa

nova

Caja

Avila

Caja

Bada

joz

Caja

Cant

abria

Caja

Duer

o

Caja

Espa

ña

Caja

Extre

mad

ura

Caja

Gene

ral

de C

anar

ias

Caja

Insu

lar d

e Ca

naria

s

Caja

Jaen

Caja

Labo

ral

Caja

Madr

id

Caja

Muni

cipal

de B

urgo

s

Caja

Murc

ia

Caja

Nava

rra

Caja

Sego

via

Caja

Vita

l

Cajam

ar

Cajas

ol

Cajas

tur

Cajas

ur

CAM

Iber

caja

Ipar

Kut

xa

Kutx

a

Sa N

ostra

Unica

ja

Tota

l o/s

amou

nt

AyT Cedulas Cajas I 15 1 15 9 7 15 7 2,048 AyT Cedulas Cajas III 9 4 1 3 4 3 7 5 9 9 9 7 3,500 AyT Cedulas Cajas IV 2 8 2 2 2 3 3 4 9 3 7 5 8 8 7 3,800 AyT Cedulas Cajas V 7 6 3 3 5 3 1 5 5 3 6 10 5 3,100 AyT Cedulas Cajas VI 3 6 3 6 3 2 5 5 9 3 3 5 3 3 8 3,300 AyT Cedulas Cajas VII 1 11 9 9 24 6 6 1,750 AyT Cedulas Cajas VIII 2 1 2 5 2 4 1 2 4 7 12 7 4 5 4,100 AyT Cedulas Cajas IX 3 4 4 4 3 2 5 2 1 9 4 10 8 3 4 5,000 AyT Cedulas Cajas X 3 2 2 7 3 6 3 6 13 10 4 3,900 CEDULAS TDA 1 17 17 17 17 14 1,750 CEDULAS TDA 2 12 10 10 15 9 5 10 2,000 CEDULAS TDA 3 6 3 15 15 8 13 2,000 CEDULAS TDA 5 7 7 20 20 13 1,500 CEDULAS TDA 6 6 7 23 17 13 3,000 CEDULAS TDA 7 5 5 17 10 20 8 8 2,000 CEDULAS TDA 9 2 10 16 10 10 8 6 3,150 CEDULAS TDA 10 16 13 2 6 10 3 3 3,150 CEDULAS TDA 11 25 4,000 CEDULAS TDA 12 9 9 9 13 2,000 CEDULAS TDA 13 9 14 5 1 2,140 CEDULAS TDA 14 80 20 1,000 CEDULAS TDA 15 10 5 12 19 12 2 2,070 CEDULAS TDA 17 15 26 3 1,950 CEDULAS TDA 18 4 28 6 1,770 CEDULAS TDA 19 33 4,500 CEDULAS TDA 20 98 2 4,100 IM Cedulas 2 34 1,475 IM Cedulas 3 5 19 47 1,060 IM Cedulas 4 7 24 7 2 10 6 5 2,075 IM Cedulas 5 8 12 40 8 1,250 IM Cedulas M1 6 30 9 6 30 1,655 IM Cedulas 7 8 42 22 8 1,250 IM Cedulas 9 4 8 24 39 1,275 IM Cedulas 10 23 12 1,300 IM Cedulas 14 25 17 33 25 1,200

213



Caixa

Ter

rass

a

Caixa

nova

Caja

Avila

Caja

Bada

joz

Caja

Cant

abria

Caja

Duer

o

Caja

Espa

ña

Caja

Extre

mad

ura

Caja

Gene

ral

de C

anar

ias

Caja

Insu

lar d

e Ca

naria

s

Caja

Jaen

Caja

Labo

ral

Caja

Madr

id

Caja

Muni

cipal

de B

urgo

s

Caja

Murc

ia

Caja

Nava

rra

Caja

Sego

via

Caja

Vita

l

Cajam

ar

Cajas

ol

Cajas

tur

Cajas

ur

CAM

Iber

caja

Ipar

Kut

xa

Kutx

a

Sa N

ostra

Unica

ja

Tota

l o/s

amou

nt

Ayt Cedulas Territoriales Cajas 2 8 8 3 8 23 3 665 Ayt Cedulas Territoriales Cajas 3 16 17 11 17 7 450 Ayt Cedulas Territoriales Cajas 4 9 16 10 10 2 7 16 10 10 965 IM CEDULAS GBP 1 2,000 CEDULAS GBP 2 3,000 CEDULAS GBP 3 2,000 AyT Cedulas Cajas Global - Series 1 4 4 3 1 2 1 4 8 2 4 11 7 3 2,640

AyT Cedulas Cajas Global - Series 2 3 3 0 7 2 1 1 3 3 1 11 8 4 8 4 2 3,600

AyT Cedulas Cajas Global - Series 3 5 6 7 2 3 2 6 2 6 14 1 4 1,400

AyT Cedulas Cajas Global - Series 4 8 7 8 17 13 20 1,195

AyT Cedulas Cajas Global - Series 5 5 13 13 3 4 1,500

AyT Cedulas Cajas Global - Series 6 13 13 7 3 20 10 7 1,500

AyT Cedulas Cajas Global - Series 7 5 10 15 20 1,000

AyT Cedulas Cajas Global - Series 8 2 5 3 4 9 7 4 13 4 4 2,230





AyT Cedulas Cajas Global - Series 13 13 8 6 6 10 3 6 6 13 6 3 1,545

AyT Cedulas Cajas Global - Series 14 12 12 47 425


214



Caixa

Ter

rass

a

Caixa

nova

Caja

Avila

Caja

Bada

joz

Caja

Cant

abria

Caja

Duer

o

Caja

Espa

ña

Caja

Extre

mad

ura

Caja

Gene

ral

de C

anar

ias

Caja

Insu

lar d

e Ca

naria

s

Caja

Jaen

Caja

Labo

ral

Caja

Madr

id

Caja

Muni

cipal

de B

urgo

s

Caja

Murc

ia

Caja

Nava

rra

Caja

Sego

via

Caja

Vita

l

Cajam

ar

Cajas

ol

Cajas

tur

Cajas

ur

CAM

Iber

caja

Ipar

Kut

xa

Kutx

a

Sa N

ostra

Unica

ja

Tota

l o/s

amou

nt

AyT Cedulas Cajas Global - Series 18 13 27 13 7 27 750


AyT Cedulas Cajas Global - Series 20 3 4 2 4 2 2 2 1 6 4 12 1 1 5 5 4 5 3 4,105

AyT Cedulas Cajas Global - Series 21 3 4 2 4 2 2 2 1 6 4 12 1 1 5 5 4 5 3 4,105

AyT Cedulas Cajas Global - Series 22 6 2 3 3 5 4 4 3 4 5 9 4 6 2,323



AyT Cedulas Cajas Global - Series 25 15 15 23 15 500

AyT Cedulas Cajas Global - Series 26 9 15 25 10 990

Programa Cedulas TDA - Class A1 2 9 13 19 19 13 16 1,585

Programa Cedulas TDA - Class A3 26 9 26 1,150

Programa Cedulas TDA - Class A4 9 3 4 4 11 13 13 20 2,310

Programa Cedulas TDA - Class A5 8 23 8 8 20 1,310

Programa Cedulas TDA - Class A6 11 5 8 5 14 12 3 15 3,805

Source: J.P. Morgan Covered Bond Research, Investor reports

215



Table 527: Multi-cedula contributors by post-merger institution, % of collateral

Banc

a Civi

ca

Base

Breo

gan

Caixa

Caja

3

Caja

Sol

Diad

a

Espi

ga

Jupi

ter

Mare

Nos

trum

Unni

m

Othe

r

AyT Cedulas Cajas I 16 22 10 15 6 16 7 8 AyT Cedulas Cajas III 3 16 4 5 7 4 4 4 16 14 22 AyT Cedulas Cajas IV 13 9 18 1 2 7 2 9 9 7 24 AyT Cedulas Cajas V 15 13 16 2 6 7 3 5 6 12 14 AyT Cedulas Cajas VI 20 9 3 7 19 8 6 28 AyT Cedulas Cajas VII 9 33 6 11 7 14 20 AyT Cedulas Cajas VIII 2 15 2 3 2 12 5 13 14 4 28 AyT Cedulas Cajas IX 5 16 8 2 4 9 8 9 13 10 17 AyT Cedulas Cajas X 6 13 21 6 10 10 10 3 21 CEDULAS TDA 1 17 34 17 31 CEDULAS TDA 2 8 10 19 10 9 12 33 CEDULAS TDA 3 8 15 3 4 4 15 15 6 31 CEDULAS TDA 5 28 5 7 14 46 CEDULAS TDA 6 20 7 4 23 8 6 32 CEDULAS TDA 7 9 5 5 17 30 5 29 CEDULAS TDA 9 2 10 5 10 32 16 3 24 CEDULAS TDA 10 2 6 10 16 29 3 35 CEDULAS TDA 11 25 75 CEDULAS TDA 12 9 22 17 43 8 CEDULAS TDA 13 5 5 2 23 48 14 2 CEDULAS TDA 14 80 20 0 CEDULAS TDA 15 19 24 5 11 2 10 28 CEDULAS TDA 17 26 15 3 56 CEDULAS TDA 18 28 25 4 34 6 3 CEDULAS TDA 19 33 67 CEDULAS TDA 20 2 98 0 IM Cedulas 2 27 12 61 IM Cedulas 3 5 12 9 74 IM Cedulas 4 2 24 6 5 7 24 7 25 IM Cedulas 5 4 12 8 8 8 60 IM Cedulas M1 6 6 21 67 IM Cedulas 7 22 8 70 IM Cedulas 9 8 4 88 IM Cedulas 10 8 12 15 23 42 IM Cedulas 14 17 25 33 25 Ayt Cedulas Territoriales Cajas 2 45 23 8 8 3 14 0

216



Banc

a Civi

ca

Base

Breo

gan

Caixa

Caja

3

Caja

Sol

Diad

a

Espi

ga

Jupi

ter

Mare

Nos

trum

Unni

m

Othe

r

Ayt Cedulas Territoriales Cajas 3 11 16 22 17 18 17 Ayt Cedulas Territoriales Cajas 4 17 10 9 16 4 26 2 5 10 AyT Cedulas Cajas Global-Series 1 3 16 16 4 1 8 1 3 9 11 9 19 AyT Cedulas Cajas Global-Series 2 8 12 8 1 2 3 0 0 9 17 9 30 AyT Cedulas Cajas Global-Series 3 4 22 9 2 1 6 7 7 11 9 5 16 AyT Cedulas Cajas Global-Series 4 13 8 6 4 15 8 8 36 AyT Cedulas Cajas Global-Series 5 13 20 5 3 8 13 13 24 AyT Cedulas Cajas Global-Series 6 20 20 20 5 17 18 AyT Cedulas Cajas Global-Series 7 10 20 5 5 5 10 45 AyT Cedulas Cajas Global-Series 8 30 11 8 5 4 11 9 6 16 AyT Cedulas Cajas Global-Series 9 19 23 4 10 8 6 31 AyT Cedulas Cajas Global-Series 10 13 16 6 6 5 6 20 6 22 AyT Cedulas Cajas Global-Series 11 15 12 2 6 10 8 2 47 AyT Cedulas Cajas Global-Series 12 8 35 3 5 15 3 33 AyT Cedulas Cajas Global-Series 13 16 13 13 11 6 15 13 6 6 AyT Cedulas Cajas Global-Series 14 12 6 12 24 47 AyT Cedulas Cajas Global-Series 16 18 14 4 7 14 6 28 9 AyT Cedulas Cajas Global-Series 18 27 13 13 13 33 AyT Cedulas Cajas Global-Series 19 8 21 6 7 18 12 12 11 5 AyT Cedulas Cajas Global-Series 20 21 16 4 3 5 5 5 15 16 5 5 AyT Cedulas Cajas Global-Series 21 21 16 4 3 5 5 5 15 16 5 5 AyT Cedulas Cajas Gl obal-Series 22 14 17 6 2 3 11 5 8 10 15 2 6 AyT Cedulas Cajas Global-Series 23 13 9 14 2 17 4 16 9 9 7 AyT Cedulas Cajas Global-Series 24 7 24 14 24 31 0 AyT Cedulas Cajas Global-Series 25 31 38 31 0 AyT Cedulas Cajas Global-Series 26 25 9 40 10 15 Programa Cedulas TDA-Class A1 9 19 2 13 10 47 Programa Cedulas TDA-Class A3 9 26 17 9 13 26 Programa Cedulas TDA-Class A4 12 4 4 10 23 13 33 Programa Cedulas TDA-Class A5 8 27 8 8 8 23 20 Programa Cedulas TDA-Class A6 14 5 12 4 13 20 3 13 15 Source: J.P. Morgan Covered Bond Research, Investor reports

217



Sw

edis

h co

vere

d bo

nds

218



Swedish Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of Swedish covered bonds in Figure 134 and Figure 135 respectively.


0

10,000

20,000

30,000

40,000

50,000

60,000

2003 2004 2005 2006 2007 2008 2009

Mortgage



020,00040,00060,00080,000

100,000120,000140,000160,000

2003 2004 2005 2006 2007 2008 2009

Mortgage


Legislative snapshot We set out below in Table 528 a snapshot of key covered bond attributes in Sweden.

Table 528: Covered bond overview Attribute Commentary Legislative Framework Covered Bond (Issuance) Act, 2004. Structure of Issuer On balance sheet issuance by a universal credit institution with a special license

granted by the Swedish FSA (no specialist banking principle). Supervision Swedish FSA monitors that the issuing institution complies with the Covered Bond

Act and associated regulations. In addition to the FSA, the regulator also appoints an independent asset inspector responsible for monitoring the cover pool Register. The Inspector ensures that only eligible collateral and substitute assets are included on the Register, the valuation of the underlying collateral is in compliance with the Covered Bond Act, and that matching requirements are met.

Cover assets Eligible collateral from the EEA for mortgage assets, with EEA and OECD for public sector assets. Maximum LTV for residential mortgages (75%), agricultural properties (70%), commercial properties (60% LTV and 10% of the collateral pool). Maximum 20% substitute assets (30% can be temporarily allowed). All assets and eligible derivative contracts must be entered into a special register.

Valuation Regular valuation of mortgage collateral required. ALM matching The cover pool must at all times exceed the aggregate value of claims under the

covered bonds on both a nominal value and NPV basis. The cover pool must also be matched in terms of currency, interest rate and maturity profile.

Over-collateralisation Not defined by legislation. Bankruptcy remoteness In the event of bankruptcy, holders of covered bonds and certain eligible

counterparties to derivative contracts related to the covered bonds benefit from a priority claim over the cover pool. Holders continue to receive timely payments following the institution's bankruptcy.




219



Swedish macro background

Figure 136: Swedish real GDP growth, y-on-y %

-8-6-4-202468

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 137: Swedish unemployment level, %

0

2

4

6

8

10

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 138: Swedish CPI and base rate %

-2-10123456

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 139: Swedish consumer confidence, index

-30-20-10

010203040

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Cons. Confidence

Source: Bloomberg

Figure 140: Swedish nominal house price growth, y-on-y %

0

0

0

0

0

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10


Source: OECD

Figure 141: Swedish building permits issued, #

0

5000

10000

15000

20000

25000

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Dw elling starts

Source: Statistics Sweden

220



Landshypotek AB Landshypotek is a cooperative credit institution specialising in the financing of Swedish agriculture and forestry industries. Customers are members of the association that owns and operates the business, and are required to be farm or forestry landowners. Landshypotek provides a wide array of financial products to its members, including both banking and insurance services.

The mainstay of Landshypotek’s product range is first-lien mortgages, with supplemental bank and insurance services offered in partnership with other providers. Due to its cooperative structure, all members receive refunds on their interest payments when the institution makes a profit.


Table 529: Landshypotek, select income statement items, SEKmm 2009 Net Interest Income 294.5 Net Other Income 95.8 Total Operating Income 390.3 Total Operating Expenses -209.7 Write-Downs -8.5 Operating Profit 172.2 Profit 129.2 Source: Landshypotek annual report 2009

Table 530: Landshypotek, select balance sheet items, SEKmm 2009 Loans to customers 46,456 Total assets 59,796 Source: Landshypotek annual report 2009

Table 531: Landshypotek, select financial metrics 2008 2009 Cost:Income 54% 49% Capital Adequacy Ratio 7.08 8.87 Tier 1 ratio 6.38 8.06 Source: Landshypotek annual report 2009

Table 532: Landshypotek, funding profile Funding profile 2009 Swedish CP 4% Swedish MTN programme 78% International EMT programme 17% Private bonds 0% Other bonds 0% Subordinated loans 1% Source: Landshypotek annual report 2009


Table 533: Covered bond characteristics As at 31 December Covered bond rating AAA/-/- Issuer rating A-/A3/A+ Cover pool 44,173 Substitute assets 6,186 Covered bonds 46,192 Over-collateralisation 4,167 9.02% Average LTV 37.1% Number of loans 131,492 Average loan size (SEK) 335,936 Agricultural properties 98.8% Residential properties 1.2% Source: Investor report

221



Länsförsäkringar Hypotek AB Twenty-four regional insurance companies own Länsförsäkringar AB, and its subsidiaries, including both Länsförsäkringar Bank AB, and its mortgage subsidiary Länsförsäkringar Hypotek AB. The Group offers insurance, pensions and banking services to its customers.

Länsförsäkringar Bank is the fifth largest retail bank in Sweden, focusing primarily on private individuals and farmers. Banking services are conducted at the 116 branches of the regional insurance companies, along with more modern distribution channels including telephone and internet banking.

Länsförsäkringar Hypotek is one of the largest retail mortgage institutions in Sweden, with lending of some SEK70bn as at March 2010, predominantly funded through the issuance of covered bonds.


Table 534: LF Hypotek, select income statement items, SEKmm 2009 Net Interest Income 285.4 Net Other Income -83.9 Total Operating Income 201.5 Total Operating Expenses -66.1 Write-Downs 5.4 Operating Profit 140.8 Net Profit 99.9 Source: LF Hypotek annual report 2009

Table 535: LF Hypotek, select balance sheet items, SEKmm 2009 Loans to customers 67,536 Retail mortgage lending 75% Agricultural lending 11% Other lending 14% Loans to credit institutions 3,216 Total assets 81,750 Source: LF Hypotek annual report 2009

Table 536: LF Hypotek, select financial metrics 2008 2009 Cost:Income 0.34 0.30 Capital Adequacy Ratio 10.5 10.7 Tier 1 ratio 8.2 9.0 Source: LF Hypotek annual report 2009

Table 537: LF Hypotek, funding profile Funding profile 2009 Covered bonds 83% Liabilities to parent company 13% Shareholder equity 4% Source: Investor presentation



March Covered bond rating AAA/Aaa/- Issuer rating A/A2/- Cover pool (SEK bn) 68 Substitute assets (SEKbn) 15 Over-collateralisation 14.6% Average LTV 60.0% Number of loans 85,069 Average loan size (SEK) 369,000 Single family houses 80% Tenant-owned apartments 19% Leisure homes 1% Source: Investor presentation

222



Nordea Hypotek AB Nordea Hypotek is a wholly owned subsidiary of Nordea Bank AB, the Nordic region’s largest financial institution. Nordea Hypotek is the third largest mortgage lender in Sweden, granting loans to Swedish households, municipalities, municipal housing companies and corporates.

The purpose of the lending is primarily to finance properties, agriculture and municipal activities, with a central emphasis on housing finance. Collateral consists predominantly of mortgages on residential property, tenant-owned apartments or municipal guarantees. Nordea also issues covered bonds through its Danish subsidiary (Nordea Realkredit).


Table 539: Nordea Hypotek, select income statement items, SEKmm

2009 Net Interest Income 3,141 Net Other Income 46 Total Operating Income 3,187 Total Operating Expenses -552 Write-Downs -61 Operating Profit 2,574 Net Profit 1,895 Source: Nordea Hypotek annual report 2009

Table 540: Nordea Hypotek, select balance sheet items, SEKmm 2009 Loans to customers 374,243 Households 50% Tenant owner apartments 18% Multi-housing 16% Public sector 11% Other collateral 5% Total assets 393,280 Source: Nordea Hypotek annual report 2009

Table 541: Nordea Hypotek, select balance sheet items, SEKmm 2008 2009 Cost:Income 22.4 19.2 Capital Adequacy Ratio 9.0 10.2 Tier 1 ratio 6.8 8.0 RWA 47,418 49,707 Source: Nordea Hypotek annual report 2009

Table 542: Nordea Hypoteke, select financial metrics Funding profile 2009 Domestic covered bonds 54% EMTN covered bonds 25% Unsecured group funding 20% Sub debt 1% Source: Investor presentation


Table 543: Covered bond characteristics As at 31 March Covered bond rating AAA/Aaa/- Issuer rating AA-/Aa2/AA- Cover pool (SEK bn) 359.2 Substitute assets (SEKbn) n/a Over-collateralisation 17.2% Average LTV 52.1% Number of loans 683,437 Average loan size (SEK) n/a Single family houses 47.0% Tenant owned units 18.2% Multi family houses 16.8% Other houses, agricultural, commercial, public sector 18.0% Source: Investor presentation

223



Skandinaviska Enskilda Banken AB Skandinaviska Enskilda Banken AB, or SEB is one of Northern Europe’s leading financial groups, and the second largest bank in Sweden after Nordea. The group is predominantly focused on banking activities (although it also carries out life insurance business in selected markets) and is a leading universal bank in Sweden and the Baltic states.

In other Nordic countries, SEB’s operations focus on wholesale and investment banking, along with wealth management. The group also offers banking services in Germany, focusing on wholesale banking, commercial real estate finance, asset management and retail banking.


Table 544: SEB, select income statement items, SEKmm FY 2009 Net interest income 19,606 Provisions for loan losses 12,448 NII less provisions 7,158 4,646 Commissions & fee income 19,252 Other operating income 5,729 Non-interest expense 33,259 Operating profit (loss) 3,526 148 PBT 3,378 Taxes 2,200 Net profit (loss) 1,114 Source: Bloomberg

Table 545: SEB, select balance sheet items, SEKmm FY 2009 Loans to public 1,187,837 Total Assets 2,308,227 Deposits 801,088 Short-term borrowings 397,433 Other short-term borrowings 120,840 Long-term borrowings 492,406 Equity 99,669 Source: Bloomberg

Table 546: SEB, select financial metrics FY 2009 NIM 0.9 ROA 0.0 ROE 1.2 ROC 0.1 Cost:Income 64.1 Core capital 12.8 Source: Bloomberg



2010 Covered bond rating -/Aaa/- Issuer rating A/A1/A+ Total Cover Pool Balance: (SEKbn) 267.8 WA Loan Balance: (SEK) 548,347 No. of Loans: 488,387 No. of Borrowers: 326,640 No. of Properties: 213,397 WA Legal Maturity (in months): 511.47 WA LTV (in %): 44.93 WA Interest Rate on Floating rate Loans (in %): 1.39 WA Interest Rate on Fixed rate Loans (in %): 3.87 Source: Investor report

Table 548: Collateral pool LTV breakdown LTV ranges As at 31 March

2010) 0-<=40% 46% >40%-<=50% 14% >50%-<=60% 12% >60%-<=70% 10% >70%-<=75% 17% Source: Investor report

224



Stadshypotek AB Stadshypotek AB is a wholly-owned domestic mortgage subsidiary of Svenska Handelsbanken AB. Handelsbanken is a universal bank offering both retail and commercial banking services in Sweden, along with operations in the other Nordic countries, as well as the UK. Its 460-strong branch network is organised along eleven regional banks, 6 of which are in Sweden, one each in Denmark, Finland and Norway and two in the UK.

Stadshypotek issues covered bonds in accordance with the Swedish Covered Bond Act, with both a domestic and international programme available to investors.


Table 549: Handelsbanken, select income statement items, SEKmm 2009 Net Interest Income 22,000 Net Other Income 10,335 Total Operating Income 3,233 Total Operating Expenses -15,220 Write-Downs -3,392 Operating Profit 13,727 Source: Handelsbanken annual report 2009

Table 550: Handelsbanken, select balance sheet items, SEKmm 2009 Loans to customers 1,477,183 Loans to credit institutions 168,100 Total assets 2,123,843 Source: Handelsbanken annual report 2009

Table 551: Handelsbanken, select financial metrics 2008 2009 Cost:Income 44.3 47.1 Capital Adequacy Ratio 16.0 20.2 Tier 1 ratio 10.5 14.2 Source: Handelsbanken annual report 2009


Table 552: Covered bond characteristics As at 31 March Covered bond rating -/Aaa/- Issuer rating AA-/Aa2/AA- Cover pool (SEKbn) 585.0 Substitute assets Covered bonds (SEKbn) 380.6 Over-collateralisation Average LTV 49.2% Number of loans 1,184,202 Average loan size (€) 441,800 Single family houses 51% Multi family houses 24% Other houses, commercial, agricultural 24% Source: Investor presentation

225



Swedbank Mortgage AB Swedbank Mortgage is the largest mortgage institution in Sweden. It has more than 1 million customers, financing more than one third of all the houses in Sweden. Swedbank Mortgage is a fully owned subsidiary of Swedbank, with its products primarily sold through the branch network of Swedbank and the savings banks (approximately 680 branches). Swedbank Mortgage lends only domestically. Its parent company focuses on the provision of banking services to private customers and small-and-medium sized enterprises in Sweden and the Baltic states.

Swedbank Mortgage funds itself on both the Swedish and international capital markets, issuing covered bonds under its domestic bond programme, its EMTN programme as well as its Swedish MTN programme.


Table 553: Swedbank Mortgage, select income statement items, SEKmm 2009 Net Interest Income 4,408 Net Other Income -597 Total Operating Income 3,811 Total Operating Expenses -19 Write-Downs -8 Operating Profit 3,784 Net Profit 3,377 Source: Swedbank Mortgage annual report 2009

Table 554: Swedbank Mortgage, select balance sheet items, SEKmm 2009 Loans to customers 672,240 Households 82% Real estate management 16% Other business lending 1% Municipalities 1% Total assets 783,848 Source: Swedbank Mortgage annual report 2009

Table 555: Swedbank Mortgage, select financial metrics 2008 2009 Cost:Income n/a n/a Capital Adequacy Ratio 8.4 9.6 Tier 1 ratio 8.4 9.6 RWA 320,560 310,556 Source: Swedbank Mortgage annual report 2009


Table 556: Covered bond characteristics As at 31 March Covered bond rating AAA/Aaa/- Issuer rating A/A2/- Cover pool (SEK bn) 613 Substitute assets (SEKbn) n/a Average LTV 44.0% Average loan size (SEK) 400,821 Residential mortgages 90.5% Forest & agriculture 6.7% Public 2.7% Commercial 0.1% Source: Investor report

226



Swedish Covered Bond Corporation The Swedish Covered Bond Corporation (SCBC) is a wholly-owned subsidiary of the Swedish Housing Finance Corporation (SBAB), which in turn is owned in its entirety by the Kingdom of Sweden. SBAB offers loans and savings products, with a 100% domestic mortgage portfolio.

SCBC's business activities are predominantly focused on issuing covered bonds, both domestically and on the international capital markets (accounting for 37% and 23% of its funding requirements respectively).


Table 557: SCBC, select income statement items, SEKmm 2009 Net Interest Income 813 Net Other Income -638 Total Operating Income 175 Total Operating Expenses -445 Write-Downs -25 Operating Profit -295 Profit -217 Source: SCBC annual report 2009

Table 558: SCBC, select balance sheet items, SEKmm 2009 Loans to customers 173,371 Households 40% Tenant owner apartments 45% Multi-housing 11% Other collateral 4% Total assets 198,112 Source: SCBC annual report 2009

Table 559: SCBC, select financial metrics 2008 2009 Cost:Income 28 n/a Capital Adequacy Ratio 10.0 11.1 Tier 1 ratio 10.0 11.1 RWA 73,535 80,760 Source: SCBC annual report 2009

Table 560: SBAB, funding profile Funding profile 2009 Swedish Covered Bond funding 30% Covered EMTN programme 26% Senior Unsecured 34% CP 10% Source: Investor presentation


Table 561: Covered bond characteristics As at 31 May 2010 S/M/F Covered bond rating AAA/Aaa/- Issuer rating (Sampo Bank plc) A+/A1/- Mortgage certificate 127,927 Pledges 38,646 Municipal & govt g'tee 5,552 KFA-Municipal g'tee 374 BKN-Public sector g'tee 498 Direct loans to municipalities 654 Other - 173,652 WA LTV mortgages 56% WA LTV pledges 65% Source: Investor report

Table 562: Collateral pool LTV breakdown End LTV % of pool 0-20 5.7% 20-40 16.2% 40-50 11.2% 50-60 18.2% 60-70 14.5% 70-75 34.2% Total 100.0% Source: Investor report

227



Sw

iss

cove

red

bond

s

228



Swiss Covered Bonds Legislative snapshot We set out below in Table 563 a snapshot of key covered bond attributes in Switzerland.

Table 563: Covered bond overview Attribute Commentary Legislative Framework Issuance under the Swiss CB framework (Pfandbriefgesetz or PfG) is limited to just

two institutions, one for cantonal banks (Pfandbriefzentrale der schweizerischen Kantonalbanken or PBZ) and one for non-cantonal banks (Pfandbriefbank schweizerischer Hypothekarinstitute or PBB). These issue in CHF only. A second variety of Swiss covered bonds has been issued in the international capital markets by UBS, using structured covered bond technology similar to that deployed by UK and Dutch issuers. This type of obligation is covered bond uses contract as opposed to statute law to define its terms.

Structure of Issuer Both PBB and PBZ use the proceeds raised through pfandbrief issuance and pass them on to the member institutions who originated the loans. The underlying mortgages remain on the member bank’s balance sheets, but PBB and PBZ receive a lien on the eligible cover assets. Similar to other contractual, structured covered bonds, UBS’ CB are direct, unsecured, unsubordinated and unconditional obligations of the Issuer. Under this structure, the Issuer lends the sums received from bond issuance to a guarantor (usually a Limited Liability Partnership, or LLP) with the LLP using the funds to purchase collateral from the originator. The LLP agrees to guarantee the Issuer’s obligations to covered bond investors, collateralising the guarantee with the purchased loans and securities acquired from the Issuer.

Supervision Swiss Banking Regulator (Finma), along with external, third-party audits Cover assets The PfG allows only for mortgages on real property and land. LTV limits stand at 67%

for homes, 50% for weekend holiday homes and 33% for apartments in holiday resorts. Substitute assets are defined as cash or Swiss marketable securities. There is no explicit cap on the level of substitute assets. With respect to UBS’ programme, eligible assets are defined in the programme terms. This includes residential mortgages, with a maximum LTV of 80%. Substitute assets are capped at 15%

Valuation Individual market values ALM matching Eligible assets must be greater than liabilities at all times on a nominal and NPV

basis. Derivatives can be used to help meet cashflow requirements Over-collateralisation Under the PfG, principal and interest payments must be covered at all times by an

equivalent amount of loans. For UBS, minimum OC varies depending on contractual obligations. Pre-maturity tests are designed to ensure the borrower can provide sufficient liquidity in case of downgrade (i.e. pre-defined period prior to scheduled bond redemption, if a borrower's short-term rating is below a prescribed threshold, the borrower must fund a cash collateral account to ensure redemption). Asset Coverage tests are designed to ensure that pool collateral is sufficient to meet future interest and principal cashflows on the outstanding covered bonds. Interest Coverage test to ensure interest from the cover pool after hedges always exceeds payments due on the covered bonds

Bankruptcy remoteness Under the PfG, member bank insolvency, pfandbrief issuers would have a direct priority claim on the interest and principal payments of registered collateral. Finma can also require transfer of the collateral pool or arrange for sale of the cover assets For UBS, bankruptcy will result in the transfer of the cover pool to the Guarantor


For pfandbrief, the bonds are UCITS but not CRD compliant For UBS, the bonds are neither UCITS or CRD compliant


229



UBS AG Headquartered in Zurich and Basel UBS is a global financial services firm, offering wealth management, asset management and investment banking services in over 50 countries. The Bank focuses on the provision of financial services to private, corporate and institutional clients across a four-division structure. Wealth Management & Swiss Bank focuses on HNW individuals (with the exception of clients in the Americas, who are served by Wealth Management Americas) and retail and corporate banking business in Switzerland. The two other divisions are Global Asset Management and the institution's Investment Bank.

The firm operates mostly out of the Americas and Switzerland, which together account for 74% of the group's workforce, while 16% is located in other European countries and 10% in Asia.

UBS has a 20% mortgage market share in Switzerland, despite the strong competition from local cantonal banks, and 28% of its funding comes from customer deposits.


Table 564: UBS AG, select income statement items, CHFmm FY 2009 Net interest income 6,445 Provisions for loan losses 1,832 NII less provisions 4,613 Commissions & fee income 20,827 Other operating income 707 Non-interest expense 27,155 Operating profit (loss) -1,571 PBT -2,562 Taxes -443 Net profit (loss) -2,736 Source: Bloomberg

Table 565: UBS AG, select balance sheet items, CHFmm FY 2009 Loans to public 306,827 Total Assets 1,340,538 Deposits 410,475 Short-term borrowings 124,740 Long-term borrowing 192,426 Equity 48,633 Source: Bloomberg

Table 566: UBS AG, select financial metrics FY 2009 NIM 0.7 ROA -0.2 ROE -7.4 ROC -0.4 C:I 98.9 Core capital 15.4 Source: Bloomberg



2010 S/M/F Covered Bond rating -/Aaa/AAA Issuer rating A+/Aa3/A+ Cover pool size (CHF) 14,406,849,376 Number of loans 37,531 Average loan balance (CHF) 383,865 Available over-collateralisation 68.8 Excess over-collateralisation 42.0 WA remaining term of loans (yrs) 3.26 WA LTV (%) 54.2 Fixed rate assets (in %) 83.9 Highest regional concentration (in %) Lake Geneva-33 Source: Investor report

Table 568: Collateral pool LTMV breakdown Current LTMV ranges As at 30 June

2010 0-<=40% 18.1 >40%-<=50% 18.7 >50%-<=60% 25.3 >60%-<=70% 20.8 >70%-<=80% 16.8 >80% 0.2 Source: Investor report

230



231



UK

cov

ered

bon

ds

232



UK Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of UK covered bonds in Figure 142 and Figure 143 respectively.


020,00040,00060,00080,000

100,000120,000140,000

2003 2004 2005 2006 2007 2008 2009

Mortgage



0

50,000

100,000

150,000

200,000

250,000

2003 2004 2005 2006 2007 2008 2009

Mortgage

Source: ECBC. Latest data available displayed Legislative snapshot We set out below in Table 569 a snapshot of key covered bond attributes in the UK.

Table 569: UK CB overview Attribute Commentary Legislative Framework

Previously a contract-law based covered bond regime. The Regulated Covered Bonds (RCB) Regulations 2008 (as subsequently amended), now provides the legislative framework for UK covered bond programmes. UK CB can therefore be either contract-law or legislative covered bonds.

Structure of Issuer UKCB are issued by credit institutions, where the CB are direct, unsecured, unsubordinated and unconditional obligations of the Issuer. Under the typical structure, the Issuer lends the sums received from bond issuance to a guarantor (usually a Limited Liability Partnership, or LLP), with the LLP using the funds to purchase collateral from the originator. Under this structure, the LLP agrees to guarantee the Issuer’s obligations to covered bond investors, collateralising the guarantee with the purchased loans and securities acquired from the Issuer. This structure is similar to that used in the Netherlands.

Supervision Financial Services Authority Cover assets Owing to the (initial) non-statutory nature of the UK covered bond framework, originators

typically define their own eligibility criteria (see individual programme snapshots). Most programmes are backed by UK residential mortgages, with Bank of Scotland’s Social Housing CB programme being the exception. Substitution assets consisting of highly liquid, non-mortgage assets are also eligible for inclusion, up to certain, pre-defined programme limits. Derivatives can be used.

Valuation Individual market values ALM matching Shelves must also comply with programme requirements, including: Pre-maturity tests are

designed to ensure the borrower can provide sufficient liquidity in case of downgrade (i.e. pre-defined period prior to scheduled bond redemption, if a borrower's short-term rating is below a prescribed threshold, the borrower must fund a cash collateral account to ensure redemption). Amortisation tests are designed to ensure the issuer has the capacity to meet its obligations following a borrower EOD. Asset Coverage tests are designed to ensure that pool collateral is sufficient to meet future interest and principal cashflows on the outstanding covered bonds


Requirements prescribed by the issuers. Nominal value of assets has to be greater than principal amount of o/s bonds, plus the costs associated with running the programme.


Similar to the Netherlands, in case of insolvency of the originator, the issuer exercises the financial guarantee over the pledged assets; if the issuer is insolvent, assets are transferred to an SPE


Dependant on programme, but generally UCITS and CRD compliant for RCBs


233



UK macro background

Figure 144: UK real GDP growth, y-on-y, %

-8-6-4-20246

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 145: UK CPI and base rate, %

01234567

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 146: UK house price growth, y-on-y, %

-20

-10

0

10

20

30

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Nationw ide house price grow th

Source: Bloomberg

Figure 147: UK unemployment level, %

0

2

4

6

8

10

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 148: UK consumer confidence, balance of survey

-40

-30

-20

-10

0

10

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Cons. Confidence

Source: Bloomberg

Figure 149: UK mortgage loan approvals, #

0

20000

40000

60000

80000

100000

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

BBA Mortgage loan approv als

Source: Bloomberg

234



Barclays plc Snapshot Barclays is one of the world’s largest financial services companies, with operations in over 50 countries. Its businesses currently include retail and commercial banking, credit cards, investment banking, wealth management and investment management services.

The Group is constructed around two broad divisions. Barclays Global Retail and Commercial Banking (GRCB) operations comprises six business units including UK retail banking, Barclays commercial bank, Barclaycard, Emerging markets, Western Europe and Absa, its South African platform. Investment Banking and Investment Management (IBIM) includes Barclays Capital (including the acquired segments of Lehman Brothers), Barclays Global Investors and Barclays Wealth.

Barclays plc issued its first UK covered bond in September 2009, and has issued two subsequent deals in 2010.


Table 570: Key profit & loss figures, £mm 2006 2007 2008 2009 Net interest income 10,105 10,826 12,149 11,974 Provisions for loan losses 2,154 2,795 5,419 8,071 NII less provisions 7,951 8,031 6,730 3,903 Commissions & fee income 8,005 8,678 7,573 9,946 Other operating income 699 707 1,220 1,730 Non-interest expense 13,913 14,169 14,479 18,210 Operating profit (loss) 6,356 7,006 2,383 4,370 PBT 7,136 7,076 5,136 4,585 Taxes 1,941 1,981 453 1,074 Net profit (loss) 4,571 4,417 4,382 9,393 Source: Bloomberg

Table 571: Key balance sheet figures, £mm 2006 2007 2008 2009 Real Estate Loans 16,528 17,018 22,155 23,468 Commercial Loans 145,477 182,319 261,680 220,255 Consumer Loans 130,012 153,622 188,471 194,709 Other Loans 10,142 13,226 18,187 15,995 Loans 282,300 345,398 461,815 420,224 Total Assets 996,787 1,227,361 2,052,980 1,378,929 Deposits 256,754 294,987 335,505 322,429 Short-term borrowings 161,819 178,166 221,659 154,912 Other ST borrowings 368,559 498,323 223,192 155,832 Long-term borrowings 42,812 50,758 72,660 83,252 Equity 27,390 32,476 47,411 58,478 Source: Bloomberg

Table 572: Key ratios, % 2006 2007 2008 2009 NIM 1.3 1.2 1.2 1.3 ROA 0.5 0.4 0.3 0.5 ROCE 24.6 20.5 14.6 22.4 ROC 1.5 1.3 1.1 2.0 C:I 60.6 57.4 63.2 57.3 Core capital 7.7 7.8 8.6 13.0 Source: Bloomberg


Table 573: Select covered bond terms Terms Asset Coverage Test (ACT) <3m in arrears 0.75 3m+ true balance & LTV<75% 0.40 3m+ true balance & LTV>75% 0.25 Asset percentage 94.0% Max. subs assets n/a Reps & warranties Min. current payments 1 Min. margin n/a Max. balance 1,500,000 Max. term (yr) 50 BTL eligible? Y Source: J.P. Morgan Covered Bond Research, Offering Circulars

Table 574: Cover pool characteristics Characteristic Ratings S/M/F Covered bond rating AAA/Aaa/AAA Issuer rating A+/Aa3/AA- Fitch D:factor 18.60% Moody's TPI Probable Cover pool Jun-10 Total pool 13,274,386,585 Asset type: Mortgages 13,274,386,585 Cash n/a Bonds outstanding 4,055,181,690 # mortgages 92,470 Avg loan balance 143,553 WA Indexed LTV 60.9% LTV>80% 13.9% LTV>90% 4.1% LTV>100% n/a Asset seasoning 21.9 Current asset percentage 77.3% Amt of credit support n/a Source: J.P. Morgan Covered Bond Research, Investor Reports, Rating Agencies

235



Bradford & Bingley Plc Snapshot Bradford & Bingley Plc (‘Bradbi’) was the UK’s largest specialist Buy-to-Let mortgage lender, before its nationalisation in September 2008. In a two-part transaction, the savings arm and branch network of Bradbi were transferred to Santander (see Santander UK plc profile), while the rest of the group's operations including the mortgage business were transferred to public ownership. The covered bonds remain an obligation of the publicly-owned institution.

Approval of State Aid support was received from the EC on 25th January 2010. This extends the HM Treasury guarantee on Bradbi's covered bonds until institutional run-off is complete.

Bradford & Bingley is set to be integrated with Northern Rock (Asset Management) plc, under a single holding company. The companies will remain separate legal entities, with their own balance sheets, liabilities and government support arrangements.


Table 575: Key profit & loss figures, £mm 2006 2007 2008 2009 Net interest income 510 548 737 612 Provisions for loan losses 7 117 699 687 NII less provisions 503 431 38 -75 Commissions & fee income 92 82 63 53 Other operating income 5 -64 206 45 Non-interest expense 272 280 277 224 Operating profit (loss) 330 175 -90 -209 PBT 247 126 134 -196 Taxes 69 33 116 -98 Net profit (loss) 178 93 18 -98 Source: Bloomberg

Table 576: Key balance sheet figures, £mm 2006 2007 2008 2009 Real Estate Loans 33,431 39,565 40,989 38,167 Commercial Loans 2,750 880 838 819 Consumer Loans 33,431 39,565 41,826 39,923 Other Loans n/a n/a n/a n/a Loans 36,132 40,445 41,826 38,986 Total Assets 45,354 51,985 55,923 49,394 Deposits 22,201 24,153 828 458 Short-term borrowings 14,341 8,221 10,945 8,100 Other ST borrowings 705 658 22,067 27,776 Long-term borrowings 6,425 17,576 20,657 11,398 Equity 1,420 1,211 1,158 1,394 Source: Bloomberg



Table 578: Select covered bond terms Terms Asset Coverage Test (ACT) <3m in arrears 0.75 3m+ true balance & LTV<75% 0.40 3m+ true balance & LTV>75% 0.40 Asset percentage 91.0% Max. subs assets 10.0% Reps & warranties Min. current payments 2 Min. margin Max. balance 1,000,000 Max. term (yr) 50 BTL eligible? Y Source: J.P. Morgan Covered Bond Research, Offering Circulars

Table 579: Cover pool characteristics Characteristic Ratings S/M/F Covered bond rating AA/Aa2/AAA Issuer rating A-1/A2/AAA Fitch D:factor No longer disclosed Moody's TPI Probable Cover pool Jun-10 Total pool 10,266,076,401 Asset type: Mortgages 10,264,898,640 Cash 1,177,761 Bonds outstanding 6,604,101,066 # mortgages 91,718 Avg loan balance 111,918 WA Indexed LTV 81.9% LTV>80% 65.2% LTV>90% 41.5% LTV>100% 13.1% Asset seasoning 53.3 Current asset percentage 83.0% Amt of credit support 1,561,669,425 Source: J.P. Morgan Covered Bond Research, Investor Reports, Rating Agencies

236



HSBC Snapshot HSBC Bank plc (‘HSBC’) is a wholly owned subsidiary of HSBC Group, one of the world’s largest financial institutions. HSBC Bank is the UK’s seventh largest mortgage lender, accounting for 4.7% of total mortgage balances outstanding. The demise of segments of the UK mortgage market saw HSBC play a larger role in the mortgage market in 2008 (latest available CML figures), with gross mortgage lending of £17.2bn or 6.7% of loans advances (compared against £10.1bn or 2.1% in 2007).


Table 580: Key profit & loss figures, £mm 2006 2007 2008 2009 Net interest income 18,929 19,053 23,374 26,187 Provisions for loan losses 5,747 8,618 13,607 16,978 NII less provisions 13,182 10,435 9,766 9,209 Commissions & fee income 11,458 13,164 13,513 13,719 Other operating income 2,265 3,540 5,250 4,523 Non-interest expense 20,356 21,681 23,614 24,965 Operating profit (loss) 11,545 11,351 8,602 9,141 PBT 12,005 12,102 5,079 4,537 Taxes 2,835 1,878 1,533 247 Net profit (loss) 8,582 9,563 3,126 3,739 Source: Bloomberg


Table 582: Key ratios, % 2006 2007 2008 2009 NIM 2.4 2.1 2.2 2.2 ROA 0.9 0.9 0.2 0.2 ROE 15.7 16.2 5.2 5.0 ROC 4.0 4.1 1.3 1.5 C:I 51.3 49.4 48.6 46.4 Core capital 9.4 9.3 8.3 10.8 Source: Bloomberg


Table 583: Select covered bond terms Terms Asset Coverage Test (ACT) <3m in arrears 0.75 3m+ true balance & LTV<75% 0.40 3m+ true balance & LTV>75% 0.25 Asset percentage 92.5% Max. subs assets Reps & warranties Min. current payments 1 Min. margin Max. balance 1,000,000 Max. term (yr) 2056 BTL eligible? Y Source: J.P. Morgan Covered Bond Research, Offering Circulars

Table 584: Cover pool characteristics Characteristic Ratings S/M/F Covered bond rating AAA/Aaa/AAA Issuer rating AA-/Aa2/AA Fitch D:factor 15.50% Moody's TPI Probable Cover pool Jun-10 Total pool 29,074,218,695 Asset type: Mortgages 29,074,218,695 Cash NR Bonds outstanding 15,569,434,133 # mortgages 274,628 Avg loan balance 105,868 WA Indexed LTV 64.2% LTV>80% 30.3% LTV>90% 13.9% LTV>100% 4.0% Asset seasoning 47.92 Current asset percentage 78.2% Amt of credit support 4,527,912,733 Source: J.P. Morgan Covered Bond Research, Investor Reports, Rating Agencies

237



Lloyds Banking Group plc (including Bank of Scotland and Lloyds TSB Bank) Snapshot Bank of Scotland Plc (‘BoS’) is wholly owned and guaranteed by Lloyds Banking Group, the combined entity formed by the acquisition of HBoS Plc by Lloyds TSB during the financial crisis of 2008. The enlarged group is the UK’s largest mortgage lender, with a market share of 30.3% in 2008. The enlarged entity is currently 41% owned by the UK government.

Bank of Scotland has two distributed covered bond programmes, one backed by residential mortgages (BoS Resi) and another backed by social housing (BoS SH) collateral. Lloyds TSB also has its own CB programme, backed by residential mortgages (L Resi).


Table 585: Key profit & loss figures, £mm 2006 2007 2008 2009 Net interest income 5,537 6,099 7,718 9,026 Provisions for loan losses 1,555 1,796 3,012 16,673 NII less provisions 3,982 4,303 4,706 -7,647 Commissions & fee income 3,116 3,224 3,231 4,254 Other operating income -3,066 -1,145 8,780 -7,680 Non-interest expense 6,147 6,167 6,794 17,501 Operating profit (loss) 4,248 3,343 756 -9,379 PBT 4,248 4,000 760 1,042 Taxes 1341 679 -38 -1,911 Net profit (loss) 2,803 3,289 772 2,827 Source: Bloomberg

Table 586: Key balance sheet figures, £mm 2006 2007 2008 2009 Real Estate Loans 110,829 123,186 140,977 457,317 Commercial Loans 61,990 76,386 94,001 236,362 Consumer Loans 118,626 125,727 139,961 405,625 Other Loans 9,862 10,109 9,841 18,017 Loans 188,285 209,814 240,344 626,969 Total Assets 343,598 353,346 436,033 1,027,255 Deposits 139,342 156,555 170,938 406,741 Short-term borrowings 72,732 74,948 125,040 188,108 Other ST borrowings 86,028 78,444 93,915 223,754 Long-term borrowings 29,852 27,673 34,440 162,573 Equity 11,507 12,425 9,699 44,107 Source: Bloomberg

Table 587: Key ratios, % FY 2006 FY 2007 FY 2008 FY 2009 ROA 0.9 0.9 0.2 0.4 ROE 26.3 28.2 7.2 10.7 ROC 2.8 2.9 0.6 1.0 C:I 47.7 52.0 61.8 68.7 Core capital 8.2 8.1 8.0 9.6 Source: Bloomberg


Table 588: Select covered bond terms Terms BoS SH BoS Resi L Resi Asset Coverage Test (ACT) <3m in arrears n/a 0.60 0.75 3m+ true balance & LTV<75% n/a 0.60 0.40 3m+ true balance & LTV>75% n/a 0.60 0.25 Asset percentage 100.0% 92.5% 93.0% Max. subs assets 25.0% 10.0% 10.0% Reps & warranties Min. current payments n/a 2 1 Min. margin n/a Max. balance n/a 1,000,000 1,000,000 Max. term (yr) n/a 50 BTL eligible? n/a Y Source: J.P. Morgan Covered Bond Research, Offering Circulars

Table 589: Cover pool characteristics Characteristic BoS SH BoS Resi L Resi Ratings S/M/F S/M/F S/M/F Covered bond rating AAA/Aaa/AAA AAA/Aaa/AAA -/Aaa/AAA Issuer rating A/A1/AA- A/A1/AA- A/A1/AA- Fitch D:factor 6.90% 18.40% 14.10% Moody's TPI Probable-High Probable Probable Cover pool Q2 2010 May-10 Jun-10 Total pool 3,834,197,890 51,754,743,118 13,240,690,185 Asset type: Mortgages 3,386,680,624 45,285,217,570 11,409,981,681 Cash 447,517,266 6,469,525,548 1,830,708,504 Bonds outstanding 2,400,000,000 32,169,538,595 8,446,750,000 # mortgages 73 459,744 112,590 Avg loan balance 46,392,885 177,445 101,341 WA Indexed LTV n/a 69.0% 56.9% LTV>80% n/a 36.8% 9.73% LTV>90% n/a 20.4% 0.65% LTV>100% n/a 8.0% 0.01% Asset seasoning n/a 53.12 40.92 Current asset % 86.0% 70.0% 79.9% Amt of credit support 68,050,145 1,521,944,819 2,172,457,446 Source: J.P. Morgan Covered Bond Research, Investor Reports, Rating Agencies

238



Nationwide Building Society Snapshot Nationwide Building Society is the UK’s largest building society, and its third largest mortgage lender (11.2% mortgage market share, similar to its 11% share of retail savings). Following an earlier merger with the Portman BS (September 2006), Nationwide has also merged with two smaller societies since the start of the financial crisis (Derbyshire BS and Cheshire BS).

As a mutual organisation, Nationwide has no shareholders and is ultimately owned by its retail savings and residential mortgage customers. As such, bottom-line profitability is not the primary driver of activity, with some of the value generated by the business being given back to members through more competitive pricing.


Table 590: Key profit & loss figures, £mm 2007 2008 2009 2010 Net interest income 1,502 1,821 1,774 1,715 Provisions for loan losses 134 106 394 549 NII less provisions 1,369 1,715 1,380 1,166 Commissions & fee income 335 334 359 378 Other operating income 91 44 145 47 Non-interest expense 1,149 1,284 1,631 1,248 Operating profit (loss) 651 707 202 307 PBT 652 686 212 341 Taxes 188 191 50 77 Net profit (loss) 464 495 162 264 Source: Bloomberg

Table 591: Key balance sheet figures, £mm 2007 2008 2009 2010 Real Estate Loans 101,883 127,078 138,794 n/a Commercial Loans n/a n/a n/a n/a Consumer Loans 101,883 127,078 138,794 n/a Other Loans 14,055 15,726 16,688 n/a Loans 115,938 142,804 155,482 152,429 Total Assets 137,379 179,027 202,361 191,397 Deposits 86,795 113,816 128,284 120,943 Short-term borrowings 27,395 37,204 38,683 8,031 Other ST borrowings 3,373 1,940 6,947 5,619 Long-term borrowings 12,716 18,403 21,671 48,562 Equity 6,510 7,253 5,820 7,240 Source: Bloomberg

Table 592: Key ratios, % FY 2007 FY 2008 FY 2009 FY 2010 NIM 1.2 1.2 1.0 n/a ROA 0.4 0.3 0.1 0.1 ROE 8.8 8.6 3.1 5.3 ROC 1.0 0.9 0.3 0.4 C:I 59.3 61.2 73.2 59.2 Core capital (%) 8.7 9.7 15.1 15.3 Source: Bloomberg


Table 593: Select covered bond terms Terms Asset Coverage Test (ACT) <3m in arrears 0.75 3m+ true balance & LTV<75% 0.40 3m+ true balance & LTV>75% 0.25 Asset percentage 93.0% Max. subs assets 10% Reps & warranties Min. current payments 2 Min. margin 0.15% Max. balance 1,000,000 Max. term (yr) 50 BTL eligible? Y Source: J.P. Morgan Covered Bond Research, Offering Circulars

Table 594: Cover pool characteristics Characteristic Ratings S/M/F Covered bond rating AAA/Aaa/AAA Issuer rating A+/Aa3/AA- Fitch D:factor 14.6% Moody's TPI Probable Cover pool May-10 Total pool 39,463,716,796 Asset type: Mortgages 39,220,675,324 Cash 243,041,472 Bonds outstanding 22,678,941,057 # mortgages 457,643 Avg loan balance 85,701 WA Indexed LTV 56.9% LTV>80% 18.7% LTV>90% 7.7% LTV>100% 1.7% Asset seasoning 62.66 Current asset percentage 84.5% Amt of credit support 6,641,157,850 Source: J.P. Morgan Covered Bond Research, Investor Reports, Rating Agencies

239



Northern Rock (Asset Management) plc Snapshot Northern Rock (AM) plc ('NRAM') is the UK government-owned run-off vehicle (formerly referred to as AssetCo), created by the nationalisation, and subsequent split of Northern Rock plc into two separate legal entities (the other, successor institution retaining the original name of the pre-nationalisation entity).

The outstanding covered bonds remain obligations of NRAM, and are currently beneficiaries of a guarantee from HM Treasury. Unlike the guarantee on Bradford & Bingley’s existing covered bonds however, this guarantee can be terminated with no less than three month's notice. The terms of the guarantee for NRAM's covered bonds remain under review with the objective of sustaining the programme's credit rating. A further announcement from HMT is expected to be made in due course.


Table 595: Key profit & loss figures, £mm 2006 2007 2008 2009 Net interest income 818 761 51 1,157 Provisions for loan losses 81 240 894 1,045 NII less provisions 737 522 -844 113 Commissions & fee income 193 185 56 27 Other operating income 1 25 53 13 Non-interest expense 352 352 363 659 Operating profit (loss) 627 179 -943 -424 PBT 627 -168 -1,356 -258 Taxes 184 31 -46 19 Net profit (loss) 443 -199 -1,378 -309 Source: Bloomberg

Table 596: Key balance sheet figures, £mm 2006 2007 2008 2009 Real Estate Loans 72,122 84,278 61,004 60,068 Commercial Loans 6,967 7,059 8,569 2,234 Consumer Loans 79,956 92,019 66,724 64,339 Other Loans n/a n/a n/a n/a Loans 86,796 98,835 74,424 65,400 Total Assets 101,011 109,321 104,346 87,446 Deposits 26,868 11,563 20,723 20,608 Short-term borrowings 54,050 51,874 51,524 33,611 Other ST borrowings 2,798 2,017 2,555 557 Long-term borrowings 14,179 41,182 28,972 29,400 Equity 2,175 1,664 -402 1,055 Source: Bloomberg

Table 597: Key ratios, % 2006 2007 2008 2009 NIM n/a 0.7 0.1 0.5 ROA 0.5 -0.2 -1.3 -0.3 ROE 20.2 -13.1 n/a n/a ROC 0.7 -0.2 -1.5 -0.4 C:I 30.4 42.1 119.2 47.6 Core capital (%) 11.7 7.7 -0.4 n/a Source: Bloomberg


Table 598: Select covered bond terms Terms Asset Coverage Test (ACT) <3m in arrears 0.75 3m+ true balance & LTV<75% 0.40 3m+ true balance & LTV>75% 0.25 Asset percentage 90.0% Max. subs assets 10.0% Reps & warranties Min. current payments 1 Min. margin 0.15% Max. balance 1,000,000 Max. term (yr) 50 BTL eligible? Y Source: J.P. Morgan Covered Bond Research, Offering Circulars

Table 599: Cover pool characteristics Characteristic Ratings S/M/F Covered bond rating AAA/Aaa/AAA Issuer rating A/Aa3/A+ Fitch D:factor 18.50% Moody's TPI Probable Cover pool May-10 Total pool 13,028,542,57 Asset type: Mortgages 11,587,785,635 Cash 1,440,756,922 Bonds outstanding 7,305,976,411 # mortgages 82,776 Avg loan balance 139,990 WA Indexed LTV 92.16% LTV>80% 70.58% LTV>90% 24.35% LTV>100% 0.99% Asset seasoning 44.12 Current asset percentage 66.00% Amt of credit support 456,094,427 Source: J.P. Morgan Covered Bond Research, Investor Reports, Rating Agencies

240



Royal Bank of Scotland Snapshot Royal Bank of Scotland Group (‘RBS’) is one of Europe's largest financial groups, despite its travails during the credit crisis. It is structured around six business lines: UK Personal which includes its retail, corporate and commercial banking and wealth management services; UK Corporate which serves UK corporate customers; RBS Insurance which includes the UK's #2 general and #1 personal insurer by GWP; US Retail and Commercial Banking provided through the Group's Citizen Financial Group; European & Middle East Retail & Commercial Banking and its Global Banking & Markets division.

The Group remains majority owned by the UK government (68.4%), with the ultimate goal of returning the institution to the private sector once restructuring is completed. RBS introduced its covered bond programme and issued its inaugural bond in 2010.


Table 600: Key profit & loss figures, £mm 2006 2007 2008 2009 Net interest income 10,596 12,069 18,675 16,504 Provisions for loan losses 1,878 1,968 8,072 14,950 NII less provisions 8,718 10,101 10,603 1,554 Commissions & fee income 7,116 8,278 9,831 9,831 Other operating income 4,888 3,509 3,113 6,397 Non-interest expense 14,268 16,027 22,650 22,651 Operating profit (loss) 9,129 7,697 -7,238 -694 PBT 8,995 9,832 -40,836 -2,595 Taxes 2,689 2,044 -2,323 -371 Net profit (loss) 6,202 7,549 -23,710 -2,672 Source: Bloomberg


Table 602: Key ratios, % 2006 2007 2008 2009 NIM 1.6 1.1 1.4 1.4 ROA 0.7 0.5 -1.1 -0.2 ROE 15.9 15.7 -43.4 -5.3 ROC 1.9 1.5 -4.9 -0.4 C:I 52.9 58.9 96.0 58.2 Core capital (%) 7.5 7.3 10.0 14.1 Source: Bloomberg


Table 603: Select covered bond terms Terms Asset Coverage Test (ACT) <3m in arrears 75% >3m in arrears 40% Asset percentage 90% Max. subs assets 15% Reps & warranties Min. current payments 1m Min. margin n/a Max. balance £2,600,000 Max. term (yr) n/a BTL eligible? n/a Source: J.P. Morgan Covered Bond Research, Offering Circulars

Table 604: Cover pool characteristics Characteristic Ratings S/M/F Covered bond rating -/Aaa/AAA Issuer rating A/A1/AA- Fitch D:factor 14.80% Moody's TPI Probable Cover pool Jun-10 Total pool 4,530,731,159 Asset type: Mortgages 4,530,731,159 Cash n/a Bonds outstanding (€) 1,250,000,000 # mortgages 33,538 Avg loan balance 135,092 WA Indexed LTV 65.8% LTV>80% 16.6% LTV>90% 0.6% LTV>100% 0.1% Asset seasoning 13.0 Current asset percentage n/a Amt of credit support n/a Source: J.P. Morgan Covered Bond Research, Investor Reports, Rating Agencies

241



Santander UK Plc Snapshot Abbey National Treasury Services Plc (‘ANTS’) is a wholly owned subsidiary of Santander UK and is the issuing entity for its UKCB programme. Santander UK, is the new name for the broader Santander Group’s UK operations, and includes the businesses of Abbey (since 2004), alongside its other UK brands, including Alliance & Leicester (full acquisition) and Bradford & Bingley (deposits & branches only)–both acquired during the financial crisis. The combined entities took a 13.7% share of the mortgage market in 2008 (latest available CML figures), marginally ahead of their share by balances outstanding of 13%. Santander UK has the third largest share of deposits (10%) and 1,303 branches.

Santander is the world’s third-largest bank in terms of profits and seventh-largest by market capitalisation. It has significant operations in Europe (Spain, Portugal, UK in particular) and Latin Amercia, where it is the region’s largest player.


Table 605: Key profit & loss figures, £mm 2006 2007 2008 2009 Net interest income 1,229 1,500 1,772 3,412 Provisions for loan losses n/a 344 348 842 NII less provisions 1,229 1,156 1,424 2,570 Commissions & fee income 789 785 768 986 Other operating income 134 n/a n/a n/a Non-interest expense 2,132 1,664 1,659 2,326 Operating profit (loss) 428 864 1,094 1,690 PBT before XO items 428 864 1,094 1,690 Taxes 115 179 275 445 Net profit (loss) 68 685 811 1,190 Source: Bloomberg

Table 606: Key balance sheet figures, £mm 2006 2007 2008 2009 Real Estate Loans n/a n/a n/a n/a Commercial Loans n/a n/a n/a n/a Consumer Loans n/a n/a n/a n/a Other Loans n/a n/a n/a n/a Loans 103,146 112,147 180,176 186,804 Total Assets 191,805 199,623 297,310 285,291 Deposits 66,519 69,650 130,245 143,893 Short-term borrowings 8,311 9,342 13,631 7,008 Other ST borrowings 78,063 75,091 77,081 72,161 Long-term borrowings 34,018 40,444 68,231 53,510 Equity 3,116 3,442 6,697 7,222 Source: Bloomberg



Table 608: Select covered bond terms Terms Asset Coverage Test (ACT) <3m in arrears 0.75 3m+ true balance & LTV<75% 0.40 3m+ true balance & LTV>75% 0.25 Asset percentage 91.0% Max. subs assets 10.0% Reps & warranties Min. current payments 1 Min. margin 0.50% Max. balance 1,000,000 Max. term (yr) 50 BTL eligible? Y Source: J.P. Morgan Covered Bond Research, Offering Circulars

Table 609: Cover pool characteristics Characteristic Ratings S/M/F Covered bond rating AAA/Aaa/AAA Issuer rating AA/Aa3/AA- Fitch D:factor 14.40% Moody's TPI Probable Cover pool Jun-10 Total pool 20,177,991,206 Asset type: Mortgages 16,151,727,468 Cash 4,026,263,738 Bonds outstanding 10,769,165,000 # mortgages 158,271 Avg loan balance 102,051 WA Indexed LTV 62.0% LTV>80% 15.5% LTV>90% 0.7% LTV>100% 0.0% Current asset percentage 76.7% Amt of credit support 4,168,699,159 Source: J.P. Morgan Covered Bond Research, Investor Reports, Rating Agencies

242



Yorkshire Building Society Snapshot Yorkshire Building Society (YBS) is the UK’s second largest building society, approximately one-seventh the size of the largest (Nationwide BS) based on Society Assets. Similar to Nationwide, YBS is a mutual organisation owned by its depositors and mortgage borrowers. YBS is the eleventh largest lender in the UK with a book of £15.9bn or a little over 1% of the total market (according to 2008 CML data).


Table 610: Key profit & loss figures, £mm 2006 2007 2008 2009 Net interest income 165 188 165 148 Provisions for loan losses 4 5 25 NII less provisions 161 183 140 148 Commissions & fee income 26 27 27 34 Other operating income 7 14 5 16 Non-interest expense 129 118 136 141 Operating profit (loss) 94 55 5 57 PBT 78 55 8 -13 Taxes 24 15 -1 -9 Net profit (loss) 54 39 9 -3 Source: Bloomberg

Table 611: Key balance sheet figures, £mm 2006 2007 2008 2009 Loans 13,269 15,362 16,292 14,979 Total Assets 17,566 20,498 23,032 22,722 Short-term borrowings 11,286 12,448 13,683 13,793 Long-term borrowings 1,596 2,424 1,762 1,091 Equity 111 160 748 553 Source: Bloomberg

Table 612: Key ratios, % 2006 2007 2008 2009 Core capital 13.4 13.6 14.1 14.2 C:I 61.4 71.0 77.1 70.1 Source: Bloomberg


Table 613: Select covered bond terms Terms Asset Coverage Test (ACT) 0.75 <3m in arrears 0.40 3m+ true balance & LTV<75% 0.25 3m+ true balance & LTV>75% 93.5% Asset percentage 10.0% Max. subs assets Reps & warranties 2 Min. current payments Min. margin 1,000,000 Max. balance 50 Max. term (yr) Y BTL eligible? 0.75 Source: J.P. Morgan Covered Bond Research, Offering Circulars

Table 614: Cover pool characteristics Characteristic Ratings S/M/F Covered bond rating AA+/Aa1/AAA Issuer rating A-/Baa1/A- Fitch D:factor 13.70% Moody's TPI Probable Cover pool May-10 Total pool 4,885,432,752 Asset type: Mortgages 4,768,881,638 Cash 116,551,114 Bonds outstanding 2,007,820,000 # mortgages 48,533 Avg loan balance 98,261 WA Indexed LTV 61.21% LTV>80% 24.95% LTV>90% 14.12% LTV>100% 5.77% Asset seasoning 53.13 Current asset percentage 72.90% Amt of credit support 987,143,434 Source: J.P. Morgan Covered Bond Research, Investor Reports, Rating Agencies

243



US

cov

ered

bon

ds

244



US Covered Bonds Market size We provide an overview of market issuance trends and outstanding volumes of US covered bonds in Figure 150 and Figure 151 respectively.


0

2,000

4,000

6,000

8,000

10,000

2003 2004 2005 2006 2007 2008 2009



02,0004,0006,000

8,00010,00012,00014,000

2003 2004 2005 2006 2007 2008 2009


Legislative snapshot We set out below in Table 615 a snapshot of key covered bond attributes in the USA. The legislature is currently looking to introduce a specific covered bond framework in the US.

Table 615: Covered bond overview Attribute Commentary Legislative Framework There is currently no special covered bond legislation. The current two covered bond

programmes are governed by the contractual law, together with a number of other US Federal regulations including SEC Rule 144a and FDIA Reg S.

Structure of Issuer Two tier approach, whereby the bonds are issued by an SPV. The sponsor bank issues $-denominated floating rate mortgage bonds backed by loans that remain on the bank's balance sheet. The SPV’s sole purpose is to purchase these bonds using the funds from the issuance of covered bonds

Supervision Current issuers are regulated by the Office of the Comptroller of the Currency, part of the US Department of Treasury

Cover assets Current issuers allow inclusions of first and second lien loans and home equity lines (JPM). Substitute collateral in the form of cash, debt guaranteed by 0% risk weight entities, exposure to 10%/20% risk weight entities and AAA-rated $-denominated RMBS is allowed.

Valuation The value of the properties is that estimated by the sponsor bank adjusted by the Office of Federal Housing Enterprise Oversight HPI; falls in this index are fully passed on to the valuation but only 85% of the increases is considered. Only the first 75% of the property value is used in the ACT

ALM matching Derivatives are allowed to manage mismatches. The individual programmes also have ACTs that ensure that the asset percentage remains below 96% for BA and 93% for JPM. A proceeds compliance test is also carried out to establish if the amounts credited to the bond and the outstanding principal amount of each underlying mortgage bond is greater than outstanding CB amounts.

Over-collateralisation The asset percentages set for each current programme correspond to 4.2% and 7.5% OC for the BA and JPM programmes respectively.

Bankruptcy remoteness If the sponsor bank defaults, substitution ceases. Following default of the SPV, the bonds can be declared immediately due and payable and the covered bond collateral can be liquidated to repay the bonds.




245



US macro background

Figure 152: USA real GDP growth, y-on-y, %

-6

-4

-2

0

2

4

6

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Real GDP grow th

Source: Bloomberg

Figure 153: USA unemployment level, %

0

2

4

6

8

10

12

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Unemploy ment

Source: Bloomberg

Figure 154: USA CPI and base rate, %

-2

0

2

4

6

8

Mar

-03

Sep-

03

Mar

-04

Sep-

04

Mar

-05

Sep-

05

Mar

-06

Sep-

06

Mar

-07

Sep-

07

Mar

-08

Sep-

08

Mar

-09

Sep-

09

Mar

-10

Inflation Base rate

Source: Bloomberg

Figure 155: USA consumer confidence index, #

020406080

100120140

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Cons. Confidence

Source: Bloomberg

Figure 156: USA house price growth, %

-10%

-5%

0%

5%

10%

15%

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

House price grow th

Source: OECD

Figure 157: USA existing home sales (mm), and housing starts index (RHS), 000s

012345678

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

02004006008001000120014001600Ex isting home sales New home sales (RHS)

Source: Bloomberg

246



Bank of America Bank of America is one the leading global financial institutions and the largest American bank by assets, since its acquisition of both Countrywide Financial and Merrill Lynch in 2008.

The company has an extensive network in its core US market, providing banking services to around 57 million consumer and small businesses. It also offers a wide range of products such as wealth management and corporate and investment banking in over 40 countries.

As the covered bonds issued by BoA’s programme have been privately placed to date, no cover pool information is available to external parties.


Table 616: Bank of America, select income statement items, $mm FY 2009 Net interest income 47,109 Provisions for loan losses 48,570 NII less provisions -1,461 Commissions & fee income 48,412 Other operating income -14 Non-interest expense 61,530 Operating profit (loss) 12,379 PBT 4,360 Taxes -1,916 Net profit (loss) 6,276 Source: Bloomberg

Table 617: Bank of America, select balance sheet items, $mm FY 2009 Real estate loans 475,556 Commercial loans 344,220 Consumer loans 555,908 Loans 862,928 Total Assets 2,223,299 Deposits 991,611 Short-term borrowings 489,285 Other short-term borrowings 43,728 Long-term borrowings 339,377 Equity 231,444 Source: Bloomberg

Table 618: Bank of America, select financial metrics FY 2009 NIM 3.1 ROA -0.1 ROE -1.3 ROC 0.7 C:I 49.7 Core capital 10.4 Source: Bloomberg

247



J.P. Morgan Chase J.P. Morgan Chase is a leading global financial services firm with over $2tr in assets and operating in over 60 countries. Its two core brands are Chase, which offers consumer and commercial banking in the US, and J.P. Morgan, which offers investment banking, asset management, treasury and private banking services globally.

J.P. Morgan Chase assumed stewardship of the WaMu covered bond programme after it took over the bank in 2008.


Table 619: J.P Morgan Chase, select income statement items, $mm FY 2009 Net interest income 51,152 Provisions for loan losses 32,015 NII less provisions 19,137 Commissions & fee income 37,460 Other operating income 916 Non-interest expense 50,096 Operating profit (loss) 18,323 PBT 16,067 Taxes 4,415 Net profit (loss) 11,728 Source: Bloomberg

Table 620: J.P Morgan Chase, select balance sheet items, $mm FY 2009 Real estate loans 244,347 Commercial loans 204,175 Consumer loans 429,283 Loans 601,856 Total Assets 2,031,989 Deposits 938,367 Short-term borrowings 460,968 Other short-term borrowings 60,125 Long-term borrowings 244,468 Equity 165,365 Source: Bloomberg

Table 621: J.P Morgan Chase, select financial metrics FY 2009 NIM 2.8 ROA 0.4 ROE 6.4 ROC 1.4 C:I 49.7 Core capital 11.1 Source: Bloomberg



2010 S/M/F Covered Bond rating AA/-/AA+ Issuer rating (J.P. Morgan Chase Bank NA) AA-/Aa1/AA- Cover pool size ($) 11,849,735,919 Outstanding liabilities (in $) 7,784,300,000 Excess credit support by asset coverage test (in %) 2.66 Excess credit support by total loan balance (in %) 52.23 WA seasoning (mths) 56 WA LTV (in %) 63.7 Highest geographic exposure (in %) California – 56.6 Interest only loans (in %) 66.2 Primary residence (in %) 80.5 Single family residential property (in %) 88.0 Full documentation (in %) 35.7 WA FICO score 740 Loan purpose distribution (in %) Purchase 32.2 Construction 3.3 Improvement 0.5 Cash out refi 35.2 Non-cash out refi 28.9 FICO Score breakdown (in %) <600 1.3 600-700 22.9 700-800 61.2 >=800 14.6 Current LTV breakdown (in %) <=50 16.6 50.01-60 17.0 60.01-65 12.6 65.01-70 14.2 70.01-75 16.5 75.01-80 23.2 Source: Investor report

248



249



250



Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Important Disclosures

Important Disclosures for Credit Research Compendium Reports: Important disclosures, including price charts for all companies under coverage for at least one year, are available through the search function on J.P. Morgan’s website https://mm.jpmorgan.com/disclosures/company or by calling this U.S. toll-free number (1-800-477-0406)

Explanation of Credit Research Ratings: Ratings System: J.P. Morgan uses the following sector/issuer portfolio weightings: Overweight (over the next three months, the recommended risk position is expected to outperform the relevant index, sector, or benchmark), Neutral (over the next three months, the recommended risk position is expected to perform in line with the relevant index, sector, or benchmark), and Underweight (over the next three months, the recommended risk position is expected to underperform the relevant index, sector, or benchmark). J.P. Morgan’s Emerging Market research uses a rating of Marketweight, which is equivalent to a Neutral rating.

Valuation & Methodology: In J.P. Morgan’s credit research, we assign a rating to each issuer (Overweight, Underweight or Neutral) based on our credit view of the issuer and the relative value of its securities, taking into account the ratings assigned to the issuer by credit rating agencies and the market prices for the issuer’s securities. Our credit view of an issuer is based upon our opinion as to whether the issuer will be able service its debt obligations when they become due and payable. We assess this by analyzing, among other things, the issuer’s credit position using standard credit ratios such as cash flow to debt and fixed charge coverage (including and excluding capital investment). We also analyze the issuer’s ability to generate cash flow by reviewing standard operational measures for comparable companies in the sector, such as revenue and earnings growth rates, margins, and the composition of the issuer’s balance sheet relative to the operational leverage in its business.

J.P. Morgan Credit Research Ratings Distribution, as of June 30, 2010

Overweight Neutral Underweight

EMEA Credit Research Universe 26% 50% 25% IB clients* 55% 64% 55%

Represents Ratings on the most liquid bond or 5-year CDS for all companies under coverage. *Percentage of investment banking clients in each rating category.

Analysts’ Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors and overall firm revenues. The firm’s overall revenues include revenues from its investment banking and fixed income business units.

Other Disclosures

J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketing name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries. QIB ONLY

Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation’s Characteristics and Risks of Standardized Options, please contact your J.P. Morgan Representative or visit the OCC’s website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf.

Legal Entities Disclosures U.S.: JPMS is a member of NYSE, FINRA and SIPC. J.P. Morgan Futures Inc. is a member of the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. U.K.: J.P. Morgan Securities Ltd. (JPMSL) is a member of the London Stock Exchange and is authorised and regulated by the Financial Services Authority. Registered in England & Wales No. 2711006. Registered Office 125 London Wall, London EC2Y 5AJ. South Africa: J.P. Morgan Equities Limited is a member of the Johannesburg Securities Exchange and is regulated by the FSB. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated

https://mm.jpmorgan.com/disclosures/company

251



by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul Branch, is regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (ABN 61 003 245 234/AFS Licence No: 238066) is a Market Participant with the ASX and regulated by ASIC. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited is a member of the National Stock Exchange of India Limited and Bombay Stock Exchange Limited and is regulated by the Securities and Exchange Board of India. Thailand: JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a member of the Philippine Stock Exchange and is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [MICA (P) 020/01/2010 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorised by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.

Country and Region Specific Disclosures U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMSL. Investment research issued by JPMSL has been prepared in accordance with JPMSL's policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to “wholesale clients” only. JPMSAL does not issue or distribute this material to “retail clients.” The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms “wholesale client” and “retail client” have the meanings given to them in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd., Frankfurt Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from two months’ prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider for derivative warrants issued by J.P. Morgan Structured Products B.V. and listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.com.hk/prod/dw/Lp.htm. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures section above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the

252



securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules.

General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.

“Other Disclosures” last revised September 1, 2010.

Copyright 2010 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan.#$J&098$#*P

JPM Covered Bond Handbook 2010

Documents

Transcript of JPM Covered Bond Handbook 2010