FAQ Covered bonds
Q & A
Yes.
The Swedish covered bond legislation fulfils the criteria set up in Article 22.4 of the UCITS directive. Both Standard & Poors and Moody's have referred to the Swedish covered bond legislation as a strong fundament of Swedbank Mortgage covered bonds.
How would Swedbank Mortgage covered bonds be affected upon a rating downgrade of Swedbank?
Swedbank Mortgage covered bonds would not be automatically downgraded upon a rating downgrade of Swedbank AB or Swedbank Mortgage AB. At a certain level however, Swedbank and or Swedbank Mortgage would be required to take certain steps to maintain the AAA rating of the covered bonds, such as providing extra liquidity or collateral for derivative exposures.
Would it be possible for Swedbank to use cash-flows generated by the cover pool assets to cover losses in other parts of the Swedbank Group, such as Baltic Banking?
No, not to the extent this would violate the liquidity matching and other matching requirements of the covered bond legislation.
What is the composition of Swedbank Mortgage's cover pool?
Swedbank Mortgage's cover pool consists per Q2 2008 of around 96.5 % residential mortgage loans, 3.4 % public sector loans, 0.1% commercial loans and 0 % supplementary assets such as government bonds. For further information regarding the cover pool, see covered bonds.
Are there any Baltic loans in the Swedbank Mortgage cover pool?
No.
Would it be possible for Swedbank Mortgage to include Baltic loans in its cover pool?
No.
The Swedish covered bond legislation allows for mortgage loans in the cover pool to be secured by real property in all countries within the EEA. However, the articles of association of Swedbank Mortgage AB (publ) only permits mortgage loans secured by real property situated in Sweden, Denmark, Finland and Norway.
Are there any loans in the cover pool secured by real property in Denmark, Finland or Norway?
No.
Why do the LTV ratios calculated by Swedbank Mortgage differ from those calculated by the rating agencies when describing the cover pool?
The calculation method we use is based on calculating LTV on a loan-by-loan basis, meaning that every mortgage is split into different loan-to-value boxes and the volume for each group is summed up. Valuations of properties are based on the original valuation and then continually up- or downgraded with a real estate price index from Sweden Statistics.
Another common method is to calculate the LTV on property level.
When Swedbank Mortgage converted its long term funding into covered bonds, we discussed this matter with the rating agencies, asking them whether our model was appropriate. The answer was that our method is a common method used in several European countries.
Why is the credit risk connected to covered bonds issued by Swedbank Mortgage AB different from the general credit risk on Swedbank?
Since Swedbank Mortgage is a separate company, investors in bonds issued by Swedbank Mortgage AB run a credit risk only on Swedbank Mortgage AB. Even more important, investors in Swedbank Mortgage AB covered bonds run a credit risk only on a pool of assets consisting of mortgage loans, public sector loans and sometimes government bonds and cash.
Has the rise in Swedish property values during recent years made it possible for Swedbank Mortgage AB to automatically issue larger volumes of covered bonds?
No. A rise in property values does not in itself enable an issuer of covered bonds to increase issuing volumes. Covered bonds have to be nominally matched against the face value of the loans in the cover pool, so issuing volumes can only be increased to the extent borrowers increase their borrowings.
