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FINANCIAL INSTITUTIONS
ISSUER PROFILE12 July 2018
TABLE OF CONTENTSCompany overview 1Financial highlights 3Portfolio structure 3International presence and portfoliocomposition by geography 4Ownership structure 4Subsidiaries 5Company management 5Company history 6Related websites and informationsources 7Moody’s related research 7
Analyst Contacts
Goetz Thurm, CFA +49.69.7073.0773VP-Senior [email protected]
Anatolii Dzeman +49.69.7073.0756Associate [email protected]
Alexander Hendricks,CFA
+49.69.7073.0779
Associate Managing [email protected]
Carola Schuler [email protected]
CLIENT SERVICES
Americas 1-212-553-1653
Asia Pacific 852-3551-3077
Japan 81-3-5408-4100
EMEA 44-20-7772-5454
DEPFA BANK plcKey Facts and Statistics - FY December 2017
Company overviewDublin-based DEPFA BANK plc (DEPFA) is a wholly owned subsidiary of the German stateagency FMS Wertmanagement AöR (FMS-WM). DEPFA’s main purpose is to manage and rundown its public sector finance asset base, which primarily consists of the cover pools of itssubsidiaries DEPFA ACS BANK DAC (Dublin) and DEPFA Pfandbrief Bank International S.A.(Luxembourg). As a result of conditions imposed by the European Commission (EC) as part ofits approval for state aid, DEPFA is not allowed to write any new business. However, the bankis allowed to enter into transactions that support regulatory requirements, the reduction ofrisk, or as part of its liquidity management.
On 19 December 2014, DEPFA’s ownership was transferred to FMS-WM, which is directlyowned by the German government through Sonderfonds Finanzmarktstabilisierung (SoFFin),the state agency responsible for supporting the German banking system. Prior to that date,the entire ordinary share capital of DEPFA was held by Hypo Real Estate Holding AG (HREHolding), the parent company of the Hypo Real Estate Group (HRE Group). During the globalfinancial crisis, HRE Group received state aid of almost €10 billion in capital and €124 billionin liquidity guarantees, in multiple stages over 2008–10, and was nationalised in 2009.
Following the 2008 collapse of Lehman Brothers, DEPFA faltered due to liquidity shortfalls,as the bank had financed long-term assets with short-term funding. The majority of the€124 billion in liquidity guarantees granted to HRE Group was required to finance DEPFA’sfunding mismatch. By 30 September 2010, the funding mismatch was resolved through theoffloading of major parts of DEPFA's assets.
The disposal reduced DEPFA's balance sheet from €250 billion, as of 30 September 2010, to€144 billion, as of 31 December 2010. The main driver of this reduction was a €132 billionasset transfer of longer-dated loans and bonds to FMS-WM, partly offset by derivativetransactions related to the disposal. As of 31 December 2017, the bank had reduced itstotal balance sheet by a further 49% to €18.6 billion from €36.7 billion at the end of 2015,largely due to maturities and terminations in line with the wind-down strategy of DEPFA.Additionally, DEPFA is utilizing asset/liability management (ALM) transactions with its parentFMS-WM, in order to shrink its balance sheet. On 4 November 2016, the DEPFA groupfinalized an ALM transaction, whereby DEPFA group sold €5.9 billion in financial assets toFMS-WM and simultaneously bought back €6.7 billion of its own covered bonds that FMS-WM had purchased in the market beforehand. On 6 November 2017, DEPFA entered into afurther ALM transaction with FMS-WM, which utilized the same approach as in the previousyear. This time, €2.0 billion nominal of DEPFA covered bonds were purchased from FMS-WMand €2.0 billion nominal of public sector assets were sold to the parent. Consequently, its
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
risk-weighted assets decreased to €1.2 billion, as of 31 December 2017, from €4.0 billion as of end December 2015. Furthermore, on 13November 2017, FMS-WM announced a new programme to purchase DEPFA covered bonds in the market.
As part of its ruling regarding state aid, the EC required HRE Group to repay €1.59 billion of equity to avoid distortion of competition.The Financial Markets Stabilisation Authority (FMSA), as the bank’s owner on behalf of the German government, decided that thisamount would need to be borne by DEPFA. The last tranche was repaid in March 2012. As of 31 December 2017, the bank’s Tier 1capital on a fully loaded basis amounted to €948 million, while its Tier 1 ratio was 78.7%.
Regarding the approval of the use of state aid to support HRE Group, the EC had set the condition that HRE Holding attempt to divestDEPFA by 2014. HRE Group launched a public tender offer for DEPFA in August 2013, with the intention of selling the entire DEPFAGroup by year-end 2014.
However, on 13 May 2014, the FMSA, together with DEPFA’s parent, HRE Holding, announced the decision to prepare the transfer ofthe ownership of DEPFA Group to FMS-WM and its full unwinding. This decision effectively aborted the government’s previous effortsto divest and privatise DEPFA Group. On 19 December 2014, the entire ordinary share capital of DEPFA was acquired by FMS-WM.
Source: Company reports, Moody’s research, Central Bank of Ireland
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.
2 12 July 2018 DEPFA BANK plc: Key Facts and Statistics - FY December 2017
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Financial highlightsOverviewNote: The financials presented below are those reported by the entity and are not adjusted for Moody’s analytic purposes. For Moody’sgenerated ratios on DEPFA BANK plc, please see <DEPFA BANK plc page on moodys.com>.
Exhibit 1
Latest full-year resultsDEPFA BANK plc(in € Million) 31-Dec-17 31-Dec-16 31-Dec-15 % Change 17/16 % Change 16/15
Total Assets 18,573 27,596 36,716 (32.70) (24.84)
Total Shareholders' Equity 2,052 1,957 1,879 4.85 4.15
Total Regulatory Capital 1,951 1,770 1,625 10.23 8.92
Tier 1 Ratio (%) 78.72 42.11 19.47 3,661 bps 2,264 bps
Net Income 95 48 (49) 97.92 N/M
Notes: 1) Consolidated figures are considered2) “Total Regulatory Capital” and “Tier 1 Ratio” are based on a fully loaded CRD IV basisSource: Company reports
Portfolio structureUnder the requirements of the EU’s approval for state aid, DEPFA Group’s business is restricted to running down its asset pool ina value-preserving manner. As a condition of the EU approval, DEPFA is prohibited from underwriting new business. The bank isallowed to underwrite business only to the extent that it is necessary for regulatory purposes, reducing risk, or as part of its liquiditymanagement.
The bank currently operates through the following three segments: DEPFA ACS BANK DAC (formerly DEPFA ACS BANK); DEPFAPfandbrief Bank International SA; and DEPFA BANK plc (and Other). For the financial year ended 31 December 2017, the largestsegment in terms of total consolidated assets was the DEPFA ACS BANK DAC segment.
DEPFA ACS BANK DAC: This segment includes the assets and liabilities in the DEPFA ACS BANK DAC cover pool, as well as otherancillary business of that entity. As of 31 December 2017, this segment reported total assets of €10.1 billion.
DEPFA Pfandbrief Bank International SA: This segment includes the assets and liabilities in the DEPFA Pfandbrief Bank InternationalS.A. cover pool, as well as other ancillary business in that entity. As of 31 December 2017, this segment reported total assets of €360million.
DEPFA BANK plc and Other: This segment incorporates all other businesses of the DEPFA Group. As of 31 December 2017, it reportedtotal consolidated assets of €8.1 billion.
Source: Company reports, Company data
3 12 July 2018 DEPFA BANK plc: Key Facts and Statistics - FY December 2017
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Exhibit 2
Business segment(% of total assets, consolidated, as of 31 December 2017)
DEPFA ACS BANK DAC
54.3%
DEPFA BANK Plc and Other
43.8%
DEPFA Pfandbrief Bank International
SA
1.9%
Source: Company report
International presence and portfolio composition by geographyBy the end of 2016, DEPFA closed all its international branches.
As of 31 December 2017, the geographical distribution of DEPFA’s portfolio in terms of exposure at default (EaD) was as follows:
Exhibit 3
DEPFA BANK plcGeographical Region
31-Dec-17 31-Dec-16
Germany 5.3 6.3
Belgium 1.1 1.9
US 1.1 2.0
Spain 0.5 0.9
Austria 0.4 0.6
France 0.4 0.6
Ireland 0.3 0.3
Italy 0.3 0.3
UK 0.3 0.4
Scandinavia 0.1 0.3
Netherlands 0.0 0.9
Other Europe 0.8 0.8
Emerging Markets1 0.1 0.1
Other Rest of World2 0.1 0.3
Total3 10.8 15.7
(Ead (in Φ Million)
Note: 1) Emerging markets as defined by IMF2) Includes Japan3) Numbers may not add due to roundingSource: Company report
Ownership structureIn October 2007, the entire ordinary share capital of DEPFA was acquired by HRE Holding, the parent company of the HRE Group. InOctober 2009, due to the financial crisis, HRE Holding was recapitalised by the German government and, as a result, became a whollyowned subsidiary of SoFFin.
On 13 May 2014, the German government announced the intention to transfer the ownership of DEPFA Group to FMS-WM.Subsequently, on 19 December 2014, the entire ordinary share capital of DEPFA was acquired by FMS-WM.
4 12 July 2018 DEPFA BANK plc: Key Facts and Statistics - FY December 2017
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DEPFA Group and its Irish entities – DEPFA BANK plc and DEPFA ACS BANK DAC are regulated by the Central Bank of Ireland. DEPFA'sLuxembourg subsidiary, DEPFA Pfandbrief Bank International SA, is regulated by the Commission de Surveillance du Secteur Financier.
Source: Company reports, Moody’s research
SubsidiariesAs of 31 December 2017, DEPFA’s subsidiaries were as follows:
Exhibit 4
DEPFA BANK plcSubsidiary Country of Incorporation Principal Activity % HeldDEPFA ACS BANK DAC Ireland Issuance and ongoing administration of asset-covered securities 100DEPFA Ireland Holding Ltd Ireland Holding company 100DEPFA Funding II LP UK Special purpose vehicle for Tier 1 capital raising 100DEPFA Funding III LP UK Special purpose vehicle for Tier 1 capital raising 100DEPFA Funding IV LP UK Special purpose vehicle for Tier 1 capital raising 100DEPFA Hold Six Unlimited Company Ireland Holding company 100DEPFA Finance N.V. Netherlands Funding vehicle 100DEPFA Pfandbrief Bank International S.A. Luxembourg Public finance banking 100
Source: Company report
Exhibit 5
Group structure
Source: Company data
Company management
Exhibit 6
DEPFA BANK plcBoard of Directors Affiliation CommitteesExecutive Members Fiona Flannery DEPFA: Member of the Board of Directors and Chief Executive Officer Nomination CommitteeHolger Horn DEPFA: Member of the Board of Directors and Chief Risk Officer –Peter Schad DEPFA: Member of the Board of Directors and Chief Operating and
Legal Officer–
Gearóid Shanley DEPFA: Member of the Board of Directors and Chief Financial Officer –
5 12 July 2018 DEPFA BANK plc: Key Facts and Statistics - FY December 2017
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Non-Executive Members Stephan Winkelmeier DEPFA: Chairman of the Board of Directors Board Risk Committee, Nomination Committee (C)Joseph Dempsey DEPFA: Member of the Board of Directors Nomination CommitteeFrank Hellwig DEPFA: Member of the Board of Directors –Christoph Mueller DEPFA: Member of the Board of Directors Audit Committee, Board Risk Committee (C)Christopher Pleister DEPFA: Member of the Board of Directors Audit Committee (C), Board Risk Committee,
Nomination CommitteeSusan Webb DEPFA: Member of the Board of Directors Audit Committee, Board Risk Committee, Nomination
Committee
Board member information as of 22 May 2018, committee information as of 31 Dec 2017(C) = ChairmanSource: Company report, Company data
Company historyDEPFA Deutsche Pfandbrief- und Hypothekenbank was established in May 1922. In 2001, to optimise business conditions, shareholdersaccepted management and supervisory board proposals to separate the company into two entities, creating the public finance bankDEPFA Group and the real estate bank Aareal Bank. When the split was completed in June 2002, DEPFA became the operating bankholding company of the DEPFA Group. In response to increasing competitive pressures and legal and regulatory constraints, DEPFA wasestablished as a Dublin-based bank.
In September 2007, DEPFA completed its acquisition of the municipal securities business of US-based First Albany Capital Inc., andestablished DEPFA First Albany Securities LLC, a licensed broker-dealer in the US municipal capital market, to increase its franchise inbond origination and cross-selling of infrastructure finance products, derivatives and advisory services in the US. However, in March2009, the bank sold its 100% stake in DEPFA First Albany Securities LLC to Jefferies and Company Inc.
In October 2007, DEPFA became a wholly owned subsidiary of HRE Holding, the parent company of HRE Group. When HRE Group wasreorganised, DEPFA sold its wholly owned subsidiary DEPFA Deutsche Pfandbriefbank AG to another business operation owned by theHRE Group for a total of €1.2 billion. It also acquired a 99.99% stake in Hypo Public Finance Bank (HPFB) from HRE Holding for €700million. Both transactions were completed in December 2007. In March 2008, a major share of the HPFB business was merged withDEPFA.
As part of the reorganisation and streamlining of HRE Group, in November 2008, Germany-based Hypo Real Estate Bank AG (asubsidiary of HRE Holding) merged with Germany-based Hypo Real Estate Bank International AG to form Hypo Real Estate Bank AG(HREB). In June 2009, DEPFA Deutsche Pfandbriefbank AG merged with HREB to create Deutsche Pfandbriefbank AG (pbb).
Over 2008–10, as a result of the financial crisis, HRE Holding had to be recapitalised by the German government in multiple stages andbecame a wholly owned subsidiary of SoFFin. In January 2010, to stabilise its financial position, HRE Holding applied to the FMSA forthe establishment of a deconsolidated environment that would allow for a bad-bank scheme. The deconsolidation would then allowthe bank to transfer several operations, assets and liabilities to FMS-WM to reduce assets while avoiding undue pressure on existingvalue. After the application was approved in October 2010, HRE Group transferred €132 billion of balance sheet assets to FMS-WM,mainly comprising non-strategic operations from the public sector portfolio, as well as the real estate finance portfolio, particularly ofDEPFA and pbb.
The stabilisation measures taken by the HRE Group on behalf of the Federal Republic of Germany (through SoFFin) were subject toongoing state aid proceedings at the EC. On 18 July 2011, the EC approved state aid for the HRE Group, while requiring the group totransfer €1.59 billion in capital (to be fully contributed by DEPFA eventually) to FMS-WM. As of Q1 2012, the capital payback had beencompleted.
The EC had also set a deadline for HRE to attempt to divest DEPFA by year-end 2014. In the meantime, DEPFA Group was activeas a subservice provider to FMS-WM. Asset servicing for FMS-WM was discontinued in September 2013 and transferred to FMSWertmanagement Service GmbH, an independent servicing company established by FMS-WM.
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On 26 August 2013, a public tender offer for DEPFA was launched by HRE Holding, with the intention of selling the entire DEPFA Groupby year-end 2014. On 13 May 2014, the FMSA, together with DEPFA’s parent, HRE Holding, announced the decision to prepare thetransfer of the ownership of DEPFA group to FMS-WM and its full unwinding.
Subsequently, on 19 December 2014, FMS-WM acquired the entire ordinary share capital of DEPFA, which became a wholly ownedsubsidiary.
On 20 March 2015, DEPFA closed its Rome (Italy) branch, and on 25 May 2015 its London (UK) branch.
On 5 February 2016, DEPFA’s subsidiary DEPFA Public Finance Bank was placed in liquidation which was completed on 26 October2016.
On 26 December 2016, DEPFA closed its Tokyo branch and on 30 December 2016, its New York branch.
Source: Company reports, Company data, Moody’s research
Related websites and information sourcesFor additional information, please see:
The company’s website
» www.depfa.com
MOODY’S has provided links or references to third party World Wide Websites or URLs (“Links or References”) solely for your convenience in locating related information and services. Thewebsites reached through these Links or References have not necessarily been reviewed by MOODY’S, and are maintained by a third party over which MOODY’S exercises no control. Accordingly,MOODY’S expressly disclaims any responsibility or liability for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on any third party website accessed via a Link or Reference. Moreover, a Link or Reference does not imply an endorsement of any third party, any website, or the products or services provided by any third party.
Moody’s related researchIssuer page on Moodys.com
» DEPFA BANK plc
Credit opinion
» DEPFA BANK plc, April 2018
Rating methodology
» Banks, April 2018
To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available on theissuer’s page . All research may not be available to all clients.
7 12 July 2018 DEPFA BANK plc: Key Facts and Statistics - FY December 2017
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8 12 July 2018 DEPFA BANK plc: Key Facts and Statistics - FY December 2017
