Credit Agricole Covered Bonds

Credit Focus
CREDIT RESEARCH / COVERED BONDS 22 February 2011
Overview of covered bond legal frameworks

Contents
z Risk factors and life cycle of a covered bond
z Main issuance structures in the covered bond market
z What the agencies think – comparing ratios per country
z Country sections
Risk factors and life cycle of a covered bond

Risk factors affecting covered bonds pre and post insolvency
Pre issuer insolvency Post issuer insolvency Post covered bond insolvency
Credit risk of the issuer Legal/structural risk in segregation process Asset risk (NPLs, recoveries)
Supervision (general + special) Pool management risk Market risk
Asset eligibility criteria (conflicts of interest if only one administrator Counterparty risk (derivatives, liquidity
for the bank + covered bonds) support)
Underwriting standards Supervision (special)
Cover pool servicing (ie, treatment of Counterparty risk (derivatives, liquidity
NPLs) support)
Counterparty risk Market risk
Market risk (any limits?) Liquidity risk (cash reserves, access to
funding post insolvency, etc.)
Liquidity risk (any limits?) Asset risk (NPLs, recoveries)
Source: Crédit Agricole CIB
Life stages of a covered bond

Structure pre issuer insolvency Structure post issuer insolvency Structure post covered bond insolvency
Bank (issuer) Other assets Other Insol- Other assets Other Insol-
liabilities + vency liabilities + vency
equity Adminis- equity Adminis-
Other assets Other trator trator
liabilities +
equity Separation Separation
Covered Cover Cover

bonds Covered pool Covered pool
Cover pool Adminis-
Cover pool bonds Cover pool bonds Adminis-
trator trator
Coupon payments
+ redemptions Coupon payments
+ redemptions Recovery
Covered bond investors Covered bond investors Covered bond investors
No default. Payments are made as scheduled Default. Payments have stopped, investors receive the recoveries
Florian Eichert, CFA, Senior Covered Bond Analyst

+44 (0)20 7214 6402 florian.eichert@ca-cib.com
research.ca-cib.com
Crédit Agricole Corporate and Investment Bank is authorised by the Comité des Etablissements de Crédit et des Entreprises d’Investissement (CECEI) and
supervised by the Commission Bancaire in France and subject to limited regulation by the Financial Services Authority. Details about the extent of our regulation by
the Financial Services Authority are available from us on request.
Credit Focus
Main issuance structures in the covered bond

market
Universal bank model
Traditional issuance model with the This is the traditional covered bond issuance model. Cover pool business is done
segregation taking place on the alongside non-eligible banking business. The issuer segregates the cover pool on
balance sheet of the issuer balance. In the event of insolvency, the pool and outstanding covered bonds are
separated from the ordinary insolvency estate. This way of issuing covered bonds
is in use in the following countries:
z Austria, Denmark (not the case for mortgage banks though), Finland,
Germany, Portugal, Spain, Sweden
Structural diagram: universal bank model

Bank
Other assets Equity +

Over- other liabilities
collaterali- Substitute assets
sation
Covered Bonds
Cover assets
Issue
Security
Investor
Strengths:
z Covered bond investors have a residual claim on the remaining assets of the
bank pari passu to senior unsecured creditors should the cover pool not be
sufficient to cover all claims
Main challenges:
z Clear segregation of cover pool assets on balance sheet
z Clear separation of cover pool assets plus covered bonds post insolvency of
the issuer
Specialised bank model

Subsidiaries of universal banks Specialised banks which are subsidiaries of universal banks issue covered
issue bonds. The cover pool assets are transferred to these issuers from their parents.
In the event of insolvency of the mother company, the issuer ideally stays
solvent. It can still operate as a normal bank, only the steady inflow of new cover
assets has stopped. This way of issuing covered bonds is in use in the following
countries:
z Denmark (in the case of mortgage banks), Finland, France, Ireland,
Luxembourg, Norway
22 February 2011 2
Credit Focus
Structural diagram: specialised bank model

Bank
Assets incl. shares in Liabilities

Mortgage Bank
If loans are originated by the mother, sale
and transfer of cover assets
Mortgage Bank
Over-
Cover assets Equity +
collaterali-
Sub liabilities
sation
Covered Bonds Issue Investor
Security
Strengths:
z No potential for commingling of cover pool assets and the remaining assets
on balance sheet of the issuer as the separation has already taken place
z Ideally, the issuer survives the insolvency of the mother company and
remains a fully functioning entity
Main challenges:
z Funding of the OC. If done through the mother company, insolvency of the
mother company could automatically lead to insolvency of the issuer
z Usually no claim on the mother company’s assets – the residual unsecured
claim is limited to the issuer’s balance sheet
z Operating in a post-insolvency scenario if the issuer has no or nearly no staff
SPV guarantees issuance by a universal bank model

Universal bank issues, SPV This way of issuing came up with the first UK covered bonds by Bank of
guarantees Scotland. A universal bank issues bonds which are in turn guaranteed by an
SPV, to which the cover assets are transferred through an equitable assignment.
In the event of insolvency of the issuer, the cover assets remain with the SPV,
which pays covered bond holders from the cash flows generated by the pool.
This way of issuing covered bonds is in use in the following countries:
z Italy, Netherlands, UK
Structural diagram: SPV guarantees universal bank issuance model

Bank

collaterali-
sation Cover assets Issue
Covered Bonds Investor
Sale through equitable assignment

SPV
Cover assets Liabilities
Guarantee
22 February 2011 3
Credit Focus
Strengths:
z No potential for commingling of cover pool assets and the remaining assets
on balance sheet of the issuer as the separation has already taken place pre
insolvency of the issuer
z Covered bond investors have a residual claim on the remaining assets of the
bank pari passu to senior unsecured creditors should the cover pool not be
sufficient to cover all claims
Main challenges:
z Liquidity generation post insolvency as the assets are held by an SPV, which
can rely only on the cash flows that are generated by the cover assets and
the trustee selling assets from the pool
What the agencies are thinking – comparing ratios

per country
Fitch
D-Factor measures the delinkeage The D-Factor from Fitch measures the degree of delinkage between issuer and
between issuer and covered bond covered bond. In short, it states the probability with which Fitch expects the
covered bonds to go into default following an issuer default. It can range from 0%
to 100%. The quality of the legal framework plays a major role in this; however,
market-related factors such as ALMM mismatches are also relevant. For
example, the agency evaluates not only the law as such but also the likelihood
with which issuers can actually make use of legal provisions such as issuing new
bonds or taking out loans to bridge liquidity gaps. This is one of the main reasons
why Portuguese D-Factors have been increased significantly in the course of the
recent months, for example, even though the law did not change.
Minimum, mean and average D-Factors per country, as at 03/02/11

100%
75%
50%
25%
0%
LUX
DEU - M
FRA - M
GBR - M
IRL - M
PRT - M
CAN
GRC
NLD
NOR
NZL
CHE
DEU - PS
DNK
ESP
FRA - PS
GBR - PS
IRL - PS
ITA
PRT - PS
USA
Mean
Source: Fitch, Crédit Agricole CIB
Moody’s
Moody’s TPI is the agency’s Moody’s Timeliness Payment Indicator gives the agency’s opinion about timely
opinion about timely payment on payment on covered bonds after the default of the issuer. It is quite similar to
covered bonds after the default of Fitch’s D-Factor only that Moody’s does not express it in percentage terms but
the issuer classifies covered bond programmes into six categories. As with Fitch, the legal
framework is only the starting point. Pool characteristics also play a role, which is
why different programmes in one country can have different TPIs.
That TPIs can also change over time became very obvious with Irish Mortgage
ACS being shifted to the ‘very improbable’ bucket recently. Only in October 2010,
Moody’s still had a TPI of ‘probable’ for Mortgage ACS.
22 February 2011 4
Credit Focus
Average TPIs of jumbo covered bonds per country

Very high High Probable / High Probable Improbable Very Improbable
Austria (Public Sector) France (Obligations Foncieres) Austria (Mortgage) Portugal Greece
Germany (Public Sector) Germany (Mortgage) Denmark Hungary
Ireland (Public Sector ACS) Finland Ireland (Mortgage ACS)
Norway France (Structured)
Spain (Cedulas Territoriales) Italy
Netherlands
Spain (Ced. Hip.)
Sweden
Switzerland
UK
Source: Moody’s, Crédit Agricole CIB
S&P
S&P categories take into account S&P categorises covered bond markets into covered bond categories. Besides
the strength of the law as well as the quality of the legal framework, it also incorporates systemic importance (ie,
the significance of covered bonds the size and history of the respective markets). A fairly new market will therefore
to that specific economy never be able to get into category 1 irrespective of the quality of the law. The size
and history argument is also a main reason for Spain to be in category 1 even
though we would rate the quality of the legal framework as being below average
in a European context. As opposed to the Fitch and Moody’s ratios above, S&P’s
covered bond categories don’t differ between issuers from a given country. Cover
pool specific factors are addressed through the asset liability mismatch (ALMM)
risk score.
Covered bond categories by country

Category 1 Category 2 Category 3
Jurisdictions Denmark Canada Greece
France ("Obligations Foncières") Finland U.S.
Germany France ("Structured Covered Bonds")
Spain Ireland
Italy
Luxembourg
The Netherlands
Norway
Portugal
Sweden
U.K.
Maximum potential number of 5 to 7 4 to 6 3 to 5
notches uplift from the ICR
Source: S&P, Crédit Agricole CIB
22 February 2011 5
Credit Focus
Austria – Pfandbriefe + Fundierte

Schuldverschreibungen
Issuance structure and overview
Issuance structure Pfandbriefe

Bank

Over-
other liabilities
collaterali-
Substitute assets
sation
Hypotheken-
Mortgage cover pfandbriefe
assets
Substitute assets Oeffentliche

Pfandbriefe
Public sector cover
Over-
assets
collaterali- Issue
sation
Security
Issue
Investor
Security
Source: ECBC, Crédit Agricole CIB
Legal basis
z Mortgage Banking Act (1899, last amended: 2005)
z Law on Secured Bank Bonds (1905, last amended: 2005)
z Mortgage Bond Act (1927, last amended: 2005)
Legal framework strengths

z Conservative valuation of mortgage assets through the use of the mortgage
lending value and 60% LTMV limits
z Strong involvement of the supervisory authority both pre and also post
insolvency
z Separate administrator for the cover pool / covered bonds post insolvency
Legal framework weaknesses

z Covered bond investors have a claim only on the first 60% of the LTMV
z All three laws prescribe only nominal 2% overcollateralisation of outstanding
covered bonds
22 February 2011 6
Credit Focus
Overview of legal framework

Product Austrian Covered Bonds
Structure
What is the legal basis? Special law
Who is the issuer? Universal credit institution with a special licence
Who owns the cover assets? The issuer directly
Cover Assets
Eligible cover assets Exposures to public sector entities
Mortgage loans (Residential + Commercial)
Geographical scope Mortgage assets + Public sector assets: EEA, CH
Mixed pools possible? No
Limit on substitute assets 15%
Valuation
Maximum LTVs Commercial, Residential, Agricultural: 60%
Basis for LTV calculation Mortgage lending value
Is there a LTV cap which makes the entire loan pool ineligible? No
If a loan's LTV exceeds the LTV cap, does the part below the limit still Yes
remain part of the cover pool?
Do covered bond holders have a preferential claim on the part of the No
loan above the LTV cap?
ALM guidelines
Minimum OC 2%
Type of coverage test Nominal
Is OC above the minimum protected? Yes
Mitigation of market risk Natural matching + stress testing
Mitigation of liquidity risk "Natural" matching + stress testing + substitute assets
Supervision and monitoring
What is the role of the supervisor? Granting licences + regular covered bond specific checks
Special role of supervisor in crisis regarding covered bonds? Safeguarding ongoing management of the cover pool directly or
via a special administrator
Involved in transfer of cover assets + covered bonds to another
credit institution
Is there an independent cover pool monitor? Yes
Segregation of assets in an insolvency scenario
Are cover assets ringfenced in an insolvency scenario of the issuer? Preferential claim by law, specific cover pool administration
Is there a separate cover pool administrator in addition to the insolvency Yes
administrator?
How can liquidity be generated post insolvency (of the mother Cash flows from the pool, sale of cover assets, take out loans
company)?
Recourse to the credit institution's insolvency estate? Yes, pari passu to senior unsecured creditors
Do derivatives survive the insolvency of the issuer? Yes
How do derivatives counterparties rank vs. covered bond holders? Pari passu with covered bond holders
Risk weight / regulatory treatment / transparency
Covered-bond-specific disclosures to the public required by law? Yes
UCITS 22(4) Yes
CRD Yes
Risk weight in the RSA 10%
Covered bond association www.pfandbriefforum.at
22 February 2011 7
Credit Focus
Denmark – Saerligt Daekkede Obligationer

Issuance structure through specialised mortgage Issuance structure through universal banks
banks
Mortgage Bank Universal Bank
Over-
collaterali-
Equity (8% of RWA) Other assets Equity +
sation Capital centre A Over-
other liabilities
All SDOs backed by collaterali-
capital centre A sation Capital centre A
All SDOs backed by
capital centre A
Over-
Capital Center X Equity (8% of RWA)
collaterali-
sation Capital Center X All SDOs backed by
All SDOs backed by
capital centre X capital centre X
Over-
Issue collaterali- Issue
Security sation
Security
Issue Issue
Investor Investor
Security Security
Source: ECBC, Crédit Agricole CIB Source: ECBC, Crédit Agricole CIB
Legal basis
z Danish Act on covered bonds (2007)

z Very strict matching principle between assets and liabilities
z Under the general balance principle, OC requirements are linked to the
amount of risk (interest, currency, option and liquidity risk) in the pool
z Administrator can access liquidity post insolvency of the issuer by taking out
loans

z No separate, independent cover pool monitor (monitoring is done by the
issuers themselves as well as the Danish FSA)
z Fairly wide geographical scope for cover assets
22 February 2011 8
Credit Focus

Product Saerligt Daekkede Obligationer
Structure
Who is the issuer? Specialised mortgage banks as well as universal credit institutions
with a special licence
Cover Assets
Ship loans (not eligible in the case of mortgage banks)
Geographical scope Mortgage assets + Public Sector assets: EEA, CH, USA, Canada,
Japan, OECD, NZ, AUS
Mixed pools possible? Yes
Valuation
Maximum LTVs Commercial: 60%, Agricultural: 60%, Ships: 70%,
Residential: 80%
Basis for LTV calculation Market value
Do covered bond holders have a preferential claim on the part of the Yes
ALM guidelines
Minimum OC 0% (8% of risk weighted assets for mortgage banks)
Type of coverage test NPV + Stress test
Mitigation of market risk Natural matching + use of derivatives + stress testing
Mitigation of liquidity risk “Natural” matching + stress testing + substitute assets
Special role of supervisor in crisis regarding covered bonds? Safeguarding ongoing management of the cover pool directly or
via a special administrator
Is there an independent cover pool monitor? No
administrator?
How can liquidity be generated post insolvency? Cash flows from the pool, sale of cover assets, take out loans
Recourse to the credit institution's insolvency estate? Yes, pari passu (senior in the case of mortgage banks) to senior
unsecured creditors
UCITS 22(4) Yes
CRD Yes
Covered bond association www.realkreditraadet.dk
22 February 2011 9
Credit Focus
Finland – Finnish Covered Bonds

Issuance structure through specialised mortgage

banks Issuance structure through universal banks
Bank Bank
Mortgage Bank Other assets Equity +
If loans are originated by the mother, sale Over- other liabilities
and transfer of cover assets collaterali- Substitute assets
sation
Finnish Covered
Mortgage Bank Bonds
Cover assets
Over-
collaterali-
Sub liabilities
sation Issue
Security
Finnish Covered Issue Investor
Bonds
Investor
Security
Legal basis
z Covered Bond Act / CBA (688/2010)

z Conservative LTV limits
z 10% limit on commercial mortgages
z Strong involvement of the supervisory authorities both pre and also post
insolvency
z Administrator can access liquidity post insolvency of the issuer by taking out
loans

z New law will apply only to covered bond issues from August 2010 onwards.
The old covered bonds will still be governed by the old covered bond law.
Issuers will have two separate cover pools and two separate covered bond
curves
z No transparency requirements by law
22 February 2011 10
Credit Focus

Product Finnish Covered Bonds
Structure
Who is the issuer? Special as well as universal credit institution with a special licence
Cover Assets
Mortgage loans (Commercial mortgages max. 10%)
Loans to housing associations without mortgage
Geographical scope Mortgage assets: EEA
Public Sector assets: EEA, outside EEA (if step 1 rating, max 20% if
step 2 rating)
Limit on substitute assets 20% (the Finnish FSA can allow this to be increased in individual
cases)
Valuation
Maximum LTVs Commercial: 60%, Residential: 70%
Is there a LTV cap which makes the entire loan pool ineligible? Yes (100%)
If a loan's LTV exceeds the LTV cap, does the part below the limit Yes
still remain part of the cover pool?
Do covered bond holders have a preferential claim on the part of Yes
the loan above the LTV cap?
ALM guidelines
Minimum OC 2%
Type of coverage test NPV
Mitigation of market risk Natural matching + use of derivatives
Mitigation of liquidity risk "Natural" matching + stress testing + substitute assets+ liquidity
facilities
Special role of supervisor in crisis regarding covered bonds? Safeguarding ongoing management of the cover pool directly or via a
special administrator
Are cover assets ringfenced in an insolvency scenario of the Preferential claim by law, specific cover pool administration
issuer?
Is there a separate cover pool administrator in addition to the Yes
insolvency administrator?
company)?
Covered-bond-specific disclosures to the public required by law? No
UCITS 22(4) Yes
CRD Yes
Covered bond association -
22 February 2011 11
Credit Focus
France – Obligations Foncières (OF) and

Obligations à l’Habitat (OH)
Issuance structure Obligations Foncières Obligations à l’Habitat

Bank Bank
Assets incl. shares in Liabilities Assets incl. shares in Liabilities

SCF SFH
Housing loans Loan from SFH
and transfer of cover assets Pledge
Societe de credit foncier (SCF) Claim
Over- Société de Financement à l’Habitat (SFH)

collaterali-
Sub liabilities Equity +
sation Substitute assets
Sub liabilities
Obligations Foncieres Issue Investor Claim on mother Issue
company Obligations à Habitat Investor
Security Security
Legal basis
z Articles L.515-13 et seq. of the French Monetary and Financial Code

z Transfer of assets has already taken place pre insolvency
z The value of guaranteed home loans and RMBS in the pool is adjusted
downward by 50% if the rating of the tranche / the guarantor falls below
AA-/Aa3 and to 0% if the rating falls below A-/A3
insolvency
z After an insolvency of the mother company, the SCF can sell assets, take out
loans, issue bonds and has access to the central bank to generate liquidity
z Issuers have to hold cash covering coupon and principal payments occurring
within the next 180 days
z For OHs, covered bond investors have a residual senior unsecured claim
against the sponsor/parent bank should the cover assets not be sufficient to
pay back covered bond investors in full (this is based on the loan from the
SFH to the sponsor/parent bank)

z Slightly wider eligible cover asset definition than the CRD (external RMBS
are cover pool eligible as well as guaranteed home loans)
z For OHs, there is no limit on home loans guaranteed by internal guarantors
(for OF, there is a limit of 35% on guaranteed home loans, no internal
guarantors are eligible)
z For OFs, little value of the residual senior unsecured claim to the issuer
(SCF) as there are practically no other assets outside the cover pool and no
recourse to the mother company exists
22 February 2011 12
Credit Focus

Product Obligations Foncieres Obligations Habitats
Structure
What is the legal basis? Special law Special law
Who is the issuer? Specialised credit institution Specialised credit institution
Who owns the cover assets? The issuer directly The issuer directly or with the mother company but
pledged to the issuer making use of the French
adaptation of the European Collateral Directive
Cover Assets
Eligible cover assets Exposures to public sector entities Home loans (including up to 100% guaranteed home
loans)
Mortgage loans (commercial / residential, including up Promissory notes which represent a claim on housing
to 35% guaranteed home loans) loans
Group originated Senior MBS Group-originated Senior MBS
Senior MBS issued by third parties Senior MBS issued by third parties
Geographical scope EEA, countries with step 1 rating EEA, countries with step 1 rating
Mixed pools possible? Yes No
Limit on substitute assets 15% 15%
Valuation
Maximum LTVs Commercial: 60%, Residential: 80%, Mortgage + Residential: 80%, Mortgage + government guarantee:
government guarantee: 100% 100%
Basis for LTV calculation Mortgage lending value Mortgage lending value
Is there a LTV cap which makes the entire loan No No
pool ineligible?
If a loan's LTV exceeds the LTV cap, does the Yes Yes
part below the limit still remain part of the cover
pool?
Do covered bond holders have a preferential Yes Yes
claim on the part of the loan above the LTV cap?
ALM guidelines
Minimum OC 2% 2%
Type of coverage test Nominal Nominal
Is OC above the minimum protected? Yes Yes
Mitigation of market risk Natural matching + use of derivatives + stress testing Natural matching + use of derivatives + stress testing
Mitigation of liquidity risk Issuers have to hold 180 days worth of liquidity, Issuers have to hold 180 days worth of liquidity,
"natural" matching + stress testing + substitute assets "natural" matching + stress testing + substitute assets
What is the role of the supervisor? Regular covered bond specific checks Regular covered bond specific checks
Special role of supervisor in crisis regarding Safeguarding ongoing management of the cover pool Safeguarding ongoing management of the cover pool
covered bonds?
Involved in transfer of cover assets + covered bonds Involved in transfer of cover assets + covered bonds
to another credit institution to another credit institution
Is there an independent cover pool monitor? Yes Yes
Are cover assets ringfenced in an insolvency Preferential claim by law, specific cover pool Preferential claim by law, specific cover pool
scenario of the issuer? administration administration
Is there a separate cover pool administrator in Yes Yes
addition to the insolvency administrator?
How can liquidity be generated post insolvency Cash flows from the pool, sale of cover assets, Cash flows from the pool, sale of cover assets,
(of the mother company)? issuance of bonds / loans, repo with the ECB issuance of bonds / loans, repo with the ECB
Recourse to the credit institution's insolvency Yes, senior to senior unsecured creditors of the SCF Yes, senior to senior unsecured creditors of the SFH,
estate? pari passu to the senior unsecured creditors of the
mother company
Do derivatives survive the insolvency of the Yes Yes
issuer?
How do derivatives counterparties rank vs. Pari passu with covered bond holders Pari passu with covered bond holders
covered bond holders?
Covered-bond-specific disclosures to the public Yes, on a quarterly basis Yes, on a quarterly basis
required by law?
UCITS 22(4) Yes Yes
CRD Yes Possible
Risk weight in the RSA 10% 10% possible
Covered bond association - -
22 February 2011 13
Credit Focus
France – Caisse de Refinancement de l’Habitat

Issuance structure CRH bonds

Participating bank 1 Participating bank X
Other assets Equity + other Other assets Equity + other

liabilities liabilities
…
Cover Cover
assets Billet de Mobi- assets Billet de Mobi-
lisation (BDM) lisation (BDM)
Pledge
Issue Caisse de Refinancement de l’Habitat (CRH)
Money market assets Equity + sub liabilities
Billet de Mobilisation CRH covered bonds

(BDM)
Billet de Mobilisation
(BDM)
Issue
Collateral
Investor
Legal basis
z Article 13 of act 1985-695
z Articles L. 313-42 to L. 313-49 of the French Monetary and Financial Code

z With 25% very high legal minimum over-collateralisation
z Only home loans eligible as collateral
z On the level of CRH perfect pass-through between covered bonds issued
and Billets de Mobilisation (only some matching requirements between
issued covered bonds and the underlying mortgages though)
z Participating banks have the obligation to supply additional capital should
losses occur at the CRH level

z Only annual disclosure required by law
z In the event a participating bank defaults, and the pledged home loan
portfolio is transferred to CRH, this might lead to unhedged ALM mismatches
(remaining participating banks have to provide liquidity and capital to support
the ongoing operations of CRH)
22 February 2011 14
Credit Focus

Product CRH
Structure
Who is the issuer? Specialised credit institution
Who owns the cover assets? The issuer directly (the assets are Billets de Mobilisation, the underlying mortgages remain
with the participating banks but are pledged to the issuer)
Cover Assets
Eligible cover assets Home loans (residential mortgages, including up to 35% guaranteed home loans)
Geographical scope EEA
Valuation
Maximum LTVs Residential: 80%
Is there a LTV cap which makes the entire loan No
pool ineligible?
If a loan's LTV exceeds the LTV cap, does the Yes
part below the limit still remain part of the cover
pool?
Do covered bond holders have a preferential Yes
claim on the part of the loan above the LTV cap?
ALM guidelines
Minimum OC 25%
Mitigation of market risk Natural matching + stress testing
Mitigation of liquidity risk "Natural" matching + stress testing, liquidity facilities
What is the role of the supervisor? Regular covered bond specific checks
Special role of supervisor in crisis regarding No
covered bonds?
Are cover assets ringfenced in an insolvency Preferential claim by law
scenario of the issuer?
Is there a separate cover pool administrator in No but CRH does not have any other material liabilities than covered bonds (OC has to be
addition to the insolvency administrator? financed by the participating banks on their level)
How can liquidity be generated post insolvency Cash flows from the pool, sale of cover assets, liquidity and capital injections from the other
(of one participating bank)? participating banks
Recourse to the credit institution's insolvency Yes, pari passu to senior unsecured creditors of the participating banks
estate?
Do derivatives survive the insolvency of the There are no derivatives on the level of CRH
issuer?
How do derivatives counterparties rank vs. n/a
covered bond holders?
Covered-bond-specific disclosures to the public Yes, on an annual basis
required by law?
UCITS 22(4) Yes
CRD Yes
22 February 2011 15
Credit Focus
Germany – Pfandbriefe
Issuance structure Pfandbriefe

Bank

Over-
other liabilities
collaterali-
Substitute assets
sation
Hypotheken-
Mortgage cover pfandbriefe
assets
Substitute assets Oeffentliche

Pfandbriefe
Public sector cover
Over-
assets
collaterali- Issue
sation
Security
Issue
Investor
Security
Legal basis
z Pfandbriefgesetz (2005) – last amended in March 2009

z Conservative valuation of mortgage assets through the use of the mortgage
lending value and 60% LTMV limits
z Detailed rules regarding the segregation of cover assets post insolvency
z Over-collateralisation has to be met after stress tests for market-related risk
factors
z Issuers have to hold cash covering coupon and principal payments occurring
within the next 180 days
z Strong involvement of the supervisory authority both pre and also post
insolvency
z Transparency regulations prescribe quarterly statements

z Covered bond investors have a claim on only the first 60% of the LTMV
z Broad set of eligible cover assets allowed by law including airplane and ship
mortgages (however, they are kept separate from the mortgage and public
sector cover pools and do not form part of the collateral backing
Hypothekenpfandbriefe or Oeffentliche Pfandbriefe)
22 February 2011 16
Credit Focus

Product Pfandbriefe
Structure
Who is the issuer? Universal credit institution with a special license
Cover Assets
Mortgage loans (Residential and commercial)
Ship loans
Aircraft loans
Geographical scope EEA, CH, USA, Canada, Japan, Multilateral development banks
Valuation
Maximum LTVs Residential, Commercial, Agricultural, Ships, Aircraft: 60%
If a loan's LTV exceeds the LTV cap, does the part below the limit Yes
still remain part of the cover pool?
Do covered bond holders have a preferential claim on the part of the No
ALM guidelines
Minimum OC 2%
Type of coverage test NPV + stress test
Mitigation of liquidity risk Issuers have to hold 180 days worth of liquidity, “natural” matching +
stress testing + substitute assets
Special role of supervisor in crisis regarding covered bonds? Safeguarding ongoing management of the cover pool
credit institution
How can liquidity be generated post insolvency? Cash flows from the pool, sale of cover assets, issuance of bonds /
loans
Recourse to the credit institution's insolvency estate? Yes, pari passu with senior unsecured creditors

Covered-bond-specific disclosures to the public required by law? Yes (quarterly)
UCITS 22(4) Yes
CRD Yes
Covered bond association www.vdp.de
22 February 2011 17
Credit Focus
Ireland – Asset Covered Securities

Issuance structure ACS

Bank

ACS bank
ACS Bank

other liabilities
Over-
collaterali-
sation
Cover assets ACS
Issue
Investor
Security
Legal basis
z Asset Covered Securities Bill, 2001
z Asset Covered Securities (Amendment) Act 2007

insolvency
z After an insolvency of the mother company, the ACS bank can sell assets,
take out loans and has central bank access to generate liquidity

z Transparency required only annually in the annual accounts of the ACS bank
z Little value of the residual senior unsecured claim to the issuer (ACS bank)
as there are only limited volumes of other assets outside the cover pool and
there is no recourse to the mother company
22 February 2011 18
Credit Focus

Product Mortgage Asset Covered Securities Commercial Mortgage Asset Covered
Securities
Structure
Who is the issuer? Specialized credit institution Specialized credit institution
Who owns the cover assets? The issuer directly The issuer directly
Cover Assets
Eligible cover assets Residential mortgage loans Commercial mortgage loans
Max 10% commercial mortgage loans Internal +external senior MBS
Internal + external senior MBS
Geographical scope EEA, Australia, Canada, Japan, New Zealand, EEA, Australia, Canada, Japan, New
Switzerland, USA Zealand, Switzerland, USA
Mixed pools possible? No No
Valuation
Maximum LTVs Commercial: 60%, Residential: 75% 60%
Basis for LTV calculation Market value Market value
Is there a LTV cap which makes the entire loan pool No No
ineligible?
If a loan's LTV exceeds the LTV cap, does the part below the Yes Yes
limit still remain part of the cover pool?
Do covered bond holders have a preferential claim on the part Yes Yes
of the loan above the LTV cap?
ALM guidelines
Minimum OC 3% 10%
Mitigation of market risk Natural matching + stress testing + use of Natural matching + stress testing + use of
derivatives derivatives
Mitigation of liquidity risk "Natural" matching + stress testing + "Natural" matching + stress testing +
substitute assets substitute assets
What is the role of the supervisor? Granting licences + regular covered bond Granting licences + regular covered bond
specific checks specific checks
Special role of supervisor in crisis regarding covered bonds? Safeguarding ongoing management of the Safeguarding ongoing management of the
cover pool directly cover pool directly
Involvement in transfer of cover assets + Involvement in transfer of cover assets +
covered bonds to another credit institution covered bonds to another credit institution
Is there an independent cover pool monitor? Yes Yes
Are cover assets ringfenced in an insolvency scenario of the Preferential claim by law, specific cover pool Preferential claim by law, specific cover pool
issuer? administration administration
Is there a separate cover pool administrator in addition to the Yes Yes
How can liquidity be generated post insolvency (of the mother Cash flows from the pool, sale of cover Cash flows from the pool, sale of cover
company)? assets, liquidity facility, mortgage backed assets, liquidity facility
promissory notes, central bank access
Recourse to the credit institution's insolvency estate? Yes, pari passu to senior unsecured creditors Yes, pari passu to senior unsecured creditors
Do derivatives survive the insolvency of the issuer? Yes Yes
How do derivatives counterparties rank vs. covered bond Pari passu with covered bond holders Pari passu with covered bond holders
holders?
Covered-bond-specific disclosures to the public required by Yes Yes
law?
UCITS 22(4) Yes Yes
CRD Yes Yes
Risk weight in the RSA 10% 10%
Covered bond association - -
22 February 2011 19
Credit Focus

Product Public Sector Asset Covered Securities
Structure
Who is the issuer? Specialized credit institution
Cover Assets
Geographical scope EEA, Australia, Canada, Japan, New Zealand, Switzerland, USA,
multilateral development banks
Valuation
Maximum LTVs -
Basis for LTV calculation -
Is there a LTV cap which makes the entire loan pool ineligible? -
Do covered bond holders have a preferential claim on the part of the loan -
above the LTV cap?
ALM guidelines
Minimum OC 3%
Mitigation of market risk Natural matching + stress testing + use of derivatives
Special role of supervisor in crisis regarding covered bonds? Safeguarding ongoing management of the cover pool directly
Involvement in transfer of cover assets + covered bonds to another
credit institution
administrator?
How can liquidity be generated post insolvency (of the mother company)? Cash flows from the pool, sale of cover assets, liquidity facility,
central bank access
UCITS 22(4) Yes
CRD Yes
22 February 2011 20
Credit Focus
Luxembourg – Lettres de Gage

Issuance structure Lettres de Gage

Bank

specialised bank
Lettres de Gage Issuer

Over-
other liabilities
collaterali-
Substitute assets
sation
Lettres de Gage
Mortgage cover Hypothécaire
assets
Substitute assets Lettres de Gage

Publique
Public sector cover
Over-
assets
collaterali- Issue
sation
Security
Issue
Investor
Security
Legal basis
z Articles 12-1 to 12-9 of the Financial Sector Act (1993, amended in 2000 and
2008)
z CSSF circular 01/42
z CSSF circular 03/95

insolvency

z Very broad eligible asset definition
z Investors only have access to the first 60% / 80% of commercial / residential
mortgage loans
22 February 2011 21
Credit Focus

Product Lettres de Gages
Structure
Cover Assets
Group originated Senior MBS
Senior MBS issued by third parties
Ship loans
Aircraft loans
Other moveable asset loans
Geographical scope EEA, CH, USA, Canada, Japan, Multilateral development banks, OECD,
NZ, AUS
Valuation
Maximum LTVs Commercial, Agricultural, Ships, Aircraft, Other moveable assets: 60%,
Residential: 80%
If a loan's LTV exceeds the LTV cap, does the part below the Yes
limit still remain part of the cover pool?
Do covered bond holders have a preferential claim on the part of No
the loan above the LTV cap?
ALM guidelines
Minimum OC 2%
Involved in transfer of cover assets + covered bonds to another credit
institution
Are cover assets ringfenced in an insolvency scenario of the Preferential claim by law, specific cover pool administration
issuer?
How can liquidity be generated post insolvency? Cash flows from the pool, sale of cover assets
How do derivatives counterparties rank vs. covered bond Pari passu with covered bond holders
holders?
UCITS 22(4) Yes

CRD Yes
22 February 2011 22
Credit Focus
Italy – Obbligazioni Bancarie Garantite

Issuance structure Obbligazioni Bancarie Garantite

Bank

collaterali-
sation Cover assets
Issue
OBG Investor
Sale and transfer
SPV
Guarantee
Legal basis
z Law 80/2005
z Law 130 on securitisations

z Banks have to fulfil additional capital requirements to be able to issue
covered bonds (no issuance limit on covered bonds only if total capital ratio
is above 11% and the tier 1 ratio above 7%)
z Involvement of the Bank of Italy both pre and also post insolvency

z No prescribed over-collateralisation by law, collateralisation required on an
NPV basis though
z Broad set of eligible assets is allowed by law
z No separate cover pool administrator post insolvency of the issuer
z Administrator has to rely on cash flows from the pool and proceeds from
selling pool assets to access liquidity post insolvency
22 February 2011 23
Credit Focus

Product Obbligazioni Bancarie Garantite
Structure
Who is the issuer? Universal credit institution
Who owns the cover assets? SPE which guarantees the covered bonds
Cover Assets
Mortgage loans (Commercial, residential)
Senior MBS issued by third parties
Geographical scope EEA, Switzerland
Valuation
If a loan's LTV exceeds the LTV cap, does the part below the limit still remain part Yes
of the cover pool?
Do covered bond holders have a preferential claim on the part of the loan above Yes
the LTV cap?
ALM guidelines
Minimum OC 0%
Mitigation of liquidity risk Natural matching + use of derivatives
Involved in transfer of cover assets + covered bonds to
another credit institution
Are cover assets ringfenced in an insolvency scenario of the issuer? Preferential claim by law, specific cover pool
administration
Is there a separate cover pool administrator in addition to the insolvency No
administrator?
UCITS 22(4) Yes
CRD Yes
Covered bond association www.abi.it
22 February 2011 24
Credit Focus
Netherlands – Dutch Registered Covered Bonds

Issuance structure Dutch Registered Covered Bonds

Bank

collaterali-
sation Cover assets
Issue
Dutch Covered Bonds Investor
Sale and transfer
SPV
Guarantee
Legal basis
z Regulation on Amending the Regulation Implementing the Financial
Supervision Act
z Decree of 3 June 2008 Regarding Covered Bonds

z Strong involvement of the Dutch Central Bank pre insolvency

z No prescribed over-collateralisation by law
z Broad set of eligible assets are allowed by law (CRD and non-CRD-
compliant assets)
z Administrator has to rely on cash flows from the pool and proceeds from
selling pool assets to access liquidity post insolvency
22 February 2011 25
Credit Focus

Product Dutch regulated covered bonds
Structure
Cover Assets
Eligible cover assets Subject to DNB approval
Geographical scope EEA, US, Canada, Japan, the Republic of Korea, Hong
Kong, Singapore, Australia, New Zealand, Switzerland
Limit on substitute assets n.a.
Valuation
Maximum LTVs -
Basis for LTV calculation -
Is there a LTV cap which makes the entire loan pool ineligible? -
If a loan's LTV exceeds the LTV cap, does the part below the limit still remain Yes
part of the cover pool?
Do covered bond holders have a preferential claim on the part of the loan Yes
above the LTV cap?
ALM guidelines
Minimum OC 0%
Mitigation of liquidity risk Natural matching + use of derivatives
Special role of supervisor in crisis regarding covered bonds? No
administrator?
How can liquidity be generated post insolvency (of the mother company)? Cash flows from the pool, sale of cover assets
UCITS 22(4) Yes
CRD Possible
Risk weight in the RSA 10% or 20% (depends on LTV limit)
22 February 2011 26
Credit Focus
Comparison of Dutch covered bond programmes

ABN Amro Achmea ING Bank NIBC Bank SNS Bank
Covered Bond Ratings AAA / Aaa / AAA - / Aa2 / AAA AAA / Aaa / AAA - / Aa2 / AAA - / Aaa / AAA
Program volume in EUR bn 25 10 30 7 15
Eligible assets Mortgages up to Mortgages up to Mortgages up to Mortgages up to Mortgages up to
EUR1.5mn EUR1.5mn EUR1.0mn EUR1.0mn EUR1.5mn
Geographical scope EEA, US, Canada, Dutch and non- EEA, US, Canada, EEA, US, Canada, EEA, US, Canada,
Japan, the Republic Dutch Japan, the Republic Japan, the Republic Japan, the Republic
of Korea, Hong of Korea, Hong of Korea, Hong of Korea, Hong
Kong, Singapore, Kong, Singapore, Kong, Singapore, Kong, Singapore,
Australia, New Australia, New Australia, New Australia, New
Zealand, Zealand, Zealand, Zealand,
Switzerland Switzerland Switzerland Switzerland
LTV cap in ACT 80% 125% 80% 80% 80%

Maximum asset percentage 92,5% 90,5% 97,0% 79,8% 72,5%
Minimum over-collateralisation 8,1% 10,5% 3,1% 25,3% 37,9%
House price indexation 100% of price 100% of price 100% of price 100% of price 100% of price
declines, 85% of declines, 85% of declines, 90% of declines, 85% of declines, 100% of
price increases price increases price increases price increases price increases
In arrears accounting for the ACT No recognition 30% of current 30% of current No recognition 30% of current
balance balance balance
Maturity structure Hard bullet + pre Soft bullet with 12 Hard bullet + pre Soft bullet with 18 Soft bullet with 12
maturity test (soft months extension maturity test (soft months extension months extension
bullets possible bullets possible
going forward) going forward)
In covered bond register Yes No Yes Yes Yes
UCITS Yes No Yes Yes Yes
Risk weight 10% 20% 10% 10% 10%
Source: Individual issuers, Crédit Agricole CIB
22 February 2011 27
Credit Focus
Norway – Obligasjoner met fortrinnsrett

Issuance structure Obligasjoner met fortrinnsrett
Bank

Boligkreditt
Bank Boligkreditt
Over-
collaterali-
Other liabilities
sation
Norwegian Covered Issue Investor
Bonds
Legal basis
z Law on the Financing Business (2002)
z Secondary legislation (2007)

z Strict stress tests for market- and liquidity-related risks
z Administrator can access liquidity post insolvency of the sponsor bank by
taking out loans or even issuing new covered bonds

z Broad set of eligible assets + mixed pools are allowed by law
z No prescribed over-collateralisation by law
z No specific involvement of the supervisory authorities in crisis
22 February 2011 28
Credit Focus

Product Obligasjoner met fortrinnsrett
Structure
Cover Assets
Mortgage loans (Residential + commercial)
Other registered assets (ships, aircraft, other moveable assets)
Geographical scope Mortgage assets: domestic
Public Sector assets: EEA, OECD
Valuation
Maximum LTVs Commercial: 60%, Residential: 75%, other (agricultural, ship,
aircraft): 60%
ALM guidelines
Minimum OC 0%
Type of coverage test NPV + stress tests
Mitigation of liquidity risk "Natural" matching + stress testing + substitute assets, liquidity
facilities
What is the role of the supervisor? Granting licences
Special role of supervisor in crisis regarding covered bonds? No
How can liquidity be generated post insolvency (of the mother Cash flows from the pool, sale of cover assets, issuance of
company)? bonds / loans
UCITS 22(4) Yes
CRD Yes
22 February 2011 29
Credit Focus
Portugal – Obrigações Hipotecárias (OH) and

Obrigações Sobre o Sector Público (OSP)
Issuance structure Portuguese Covered Bonds

Bank

Over-
other liabilities
collaterali-
Substitute assets
sation
Obrigações
Mortgage cover Hipotecárias
assets
Substitute assets Obrigações Sobre o

Sector Público
Public sector cover
Over-
assets
collaterali- Issue
sation
Security
Issue
Investor
Security
Legal basis
z Decreto-Lei n.º 59/2006, Primary Legislation
z Portuguese Secondary Legislation - Notice number 5/2006

z Administrator can access liquidity post insolvency
z Strong involvement of the Bank of Portugal both pre and also post insolvency
z OC levels must be maintained even after stress tests

z Covered bond holders have no claim on the part of the loan above the LTV
limits
z If a loan exceeds the LTV limit due to house price declines, it has to be taken
out of the cover pool, putting pressure on OC limits if it cannot be substituted
by an eligible loan
z No transparency requirement by law
z Counterparties of liquidity facilities rank subordinate to covered bond
investors and derivative counterparties making it more difficult/costly for
issuers to find counterparties for this purpose
22 February 2011 30
Credit Focus

Product Obrigações Hipotecárias (OH) + Obrigações Sobre o
Sector Público (OSP)
Structure
Who is the issuer? Universal credit institution or specialised credit institution
Cover Assets
Eligible cover assets Exposures to public sector entities (OSP)
Mortgage loans (Commercial + residential for OH)
Geographical scope Mortgage assets: EEA
Public Sector assets: EEA
Valuation
Is there a LTV cap which makes the entire loan pool ineligible? Yes (Commercial: 60%, Residential: 80%)
If a loan's LTV exceeds the LTV cap, does the part below the limit still remain No, loans have to be removed if limits are breached.
part of the cover pool?
Do covered bond holders have a preferential claim on the part of the loan No
above the LTV cap?
ALM guidelines
Minimum OC 5.26% for OH, 0% for OSP
Type of coverage test NPV + stress test
Mitigation of liquidity risk "Natural" matching + stress testing + substitute assets +
liquidity facilities
Special role of supervisor in crisis regarding covered bonds? Involved in transfer of cover assets + covered bonds to
another credit institution
Are cover assets ringfenced in an insolvency scenario of the issuer? Preferential claim by law, specific cover pool
administrator?
How can liquidity be generated post insolvency (of the mother company)? Cash flows from the pool, sale of cover assets, take out
loans
UCITS 22(4) Yes
CRD Yes
Covered bond association GOH Portugal
22 February 2011 31
Credit Focus
Spain – Cedulas Hipotecarias + Territoriales

Issuance structure
Issuance structure Cedulas Hipotecarias Issuance structure Multi Cedulas Hipotecarias

Bank Bank 1 Bank X
Other assets Equity + Other assets Equity +

other other
other liabilities liabilities
liabilities
Substitute assets …
Cover assets Cover assets
Over- Non-qualifying Cedulas Cedulas
collaterali- mortgages Hipotecarias Hipotecarias
sation
Qualifying mortgages Issue Fond de Titulización

Cedulas Hipotecarias
Other assets Liquidity line /
reserve fund
Issue Cedulas Multi Cedulas

Security Hipotecarias 1 Hipotecarias Issue
Investor Investor
Cedulas
Hipotecarias X
Legal basis
z Law 2/1981 – on the regulation of the mortgage market, which was updated
by Law 41/2007
z Royal Decree 716/2009 – develops certain aspects of Law 2/1981
z Law 22/2003 – insolvency law
z Law 3/2009 – establishes that mortgage market law supersedes the
insolvency law

z High over-collateralisation levels required by law
z Derivatives counterparties are subordinate to covered bond holders
(however, this makes it more difficult to find counterparties)
z Insolvency administrator has the ability to take out loans and issue new
bonds post insolvency of the issuer to generate liquidity

z Weak ALM guidelines (ie, no regulations regarding interest rate and currency
risk hedging)
z In case of insolvency of the issuer, there is no separate administrator for the
cover pool and the covered bonds
z It is unlikely that the administrator will have access to ECB funding after the
insolvency of the issuer
z Transparency requirements prescribe only annual disclosure
22 February 2011 32
Credit Focus

Product Cedulas Hipotecarias Cedulas Territoriales
Structure
Who is the issuer? Universal credit institution Universal credit institution
Who owns the cover assets? The issuer directly The issuer directly
Cover Assets
Eligible cover assets Mortgage loans Exposures to public sector
entities
Geographical scope EU EEA
Mixed pools possible? No No
Valuation
Maximum LTVs Commercial: 60%, Residential: 80% not relevant
Basis for LTV calculation Mortgage lending value not relevant
Is there a LTV cap which makes the entire loan pool No not relevant
ineligible?
If a loan's LTV exceeds the LTV cap, does the part below Yes, but it the whole loans will not be not relevant
the limit still remain part of the cover pool? considered eligible anymore for the
purpose of calculating the legal OC
Do covered bond holders have a preferential claim on the Yes not relevant
part of the loan above the LTV cap?
ALM guidelines
Minimum OC 25% 43%
Mitigation of market risk Use of derivatives Not specified in law
Mitigation of liquidity risk "Natural" matching + substitute assets Not specified in law
What is the role of the supervisor? Covered bond specific checks Covered bond specific checks
Special role of supervisor in crisis regarding covered No No
bonds?
Is there an independent cover pool monitor? Yes No
Are cover assets ringfenced in an insolvency scenario of Preferential claim by law Preferential claim by law
the issuer?
Is there a separate cover pool administrator in addition to No No
the insolvency administrator?
How can liquidity be generated post insolvency? Cash flows from the pool, sale of cover Cash flows from the pool, sale
assets, issuance of bonds / loans of cover assets
Recourse to the credit institution's insolvency estate? Yes, pari passu with senior unsecured Yes, pari passu with senior
creditors unsecured creditors
Do derivatives survive the insolvency of the issuer? Yes Not specified in law
How do derivatives counterparties rank vs. covered bond Subordinated to covered bond holders Not specified in law
holders?
Covered-bond-specific disclosures to the public required Yes No
by law?
UCITS 22(4) Yes Yes
CRD Yes Yes
Risk weight in the RSA 10% 10%
Covered bond association - ‐
22 February 2011 33
Credit Focus
Sweden – Säkerställda Obligationer

Issuance structure Swedish Covered Bonds

Bank

collaterali- Substitute assets
sation
Swedish Covered
Bonds
Cover assets
Issue
Security
Investor
Legal basis
z The Swedish Covered Bond (Issuance) Act 2003:1223
z Regulations and general guidelines governing covered bonds, Finansinspek-
tionen, 2004
z Government Bill – Liquidity matching for covered bonds 2009/10:1032

z Administrator can access liquidity post insolvency
z Involvement of the FSA both pre and also post insolvency
z Commercial mortgages limited to 10% of the pool volume
z New mortgages cannot be granted in Sweden if their LTV would exceed 85%

z No over-collateralisation required by law, collateralisation has to withstand
stress tests though
z Mixed pools possible
z No transparency requirement by law
22 February 2011 34
Credit Focus

Product Säkerställda Obligationer
Structure
Who is the issuer? Universal credit institution with a special license
Cover Assets
Mortgage loans (Commercial mortgages max. 10%)
Geographical scope Mortgage assets: domestic, EEA
Public Sector assets: domestic, EEA, OECD
Limit on substitute assets 20% (the Swedish FSA can allow this to be increased to 30%
for a limited period)
Valuation
Maximum LTVs Commercial: 60%, Residential: 75%, agricultural: 70%
ALM guidelines
Minimum OC 0%
Type of coverage test NPV + stress tests
Special role of supervisor in crisis regarding covered bonds? Safeguarding ongoing management of the cover pool directly
or via a special administrator
administrator?
company)?
UCITS 22(4) Yes
CRD Yes
Covered bond association www.ascb.se
22 February 2011 35
Credit Focus
United Kingdom – Regulated UK Covered Bonds

Issuance structure UK Covered Bonds

Bank

collaterali-
sation Cover assets
Issue
UK Covered Bonds Investor
Sale through equitable

assignment
SPV
Guarantee
Legal basis
z Regulated Covered Bond Regulations 2008
z Regulated Covered Bonds Specialist Sourcebook 2008

z Strong involvement of the FSA both pre and also post insolvency
z Currently no transparency requirement by law (although the FSA will impose
strict rules going forward, which will provide the best transparency in the
market)

z The SPV can rely only on the cash flows generated by the pool and the
ability to sell assets to make coupon and redemption payments
z No detailed rules regarding market and liquidity risk in the law
z No over-collateralisation required by law
z Broad set of eligible cover assets allowed by law
22 February 2011 36
Credit Focus

Product UK Regulated Covered Bonds
Structure
Cover Assets
Eligible cover assets Mortgage loans (Commercial + residential)
Exposures to public sector entities and PPI/PFIs
Mortgage loans and loans to housing associations without a
mortgage
Ship loans
Geographical scope EEA, CH, USA, Canada, Japan, NZ, AUS
Limit on substitute assets Not specified in law
Valuation
ALM guidelines
Minimum OC 0%
Mitigation of market risk Use of derivatives
credit institution
Are cover assets ringfenced in an insolvency scenario of the issuer? Preferential claim by law to the assets held by the SPE
UCITS 22(4) Yes
CRD Yes
Covered bond association www.ukrcbc.com
22 February 2011 37
Credit Focus
Comparison of UK regulated covered bond programmes

Abbey Barclays Bank Bank of HSBC Lloyds TSB Nationwide Royal Bank of Yorkshire
National Scotland Bank BS Scotland BS
Covered Bond AAA / Aaa / - / Aaa / AAA AAA / Aaa / AAA / Aaa / - - / Aaa / AAA AAA / Aaa / - / Aaa / AAA - / Aa1 /
Rating AAA AAA AAA AAA
Programm volume 25 35 60 15 60 35 15 7.5
in EUR bn
Eligible assets Residential Residential Residential Residential Residential Residential Residential Residential
mortgages up mortgages up to mortgages up mortgages up mortgages up mortgages up mortgages up to mortgages
to GBP1.0mn GBP1.5mn to GBP1.0mn to GBP1.0mn to GBP1.0mn to GBP1.0mn GBP2.6mn up to
GBP1.0mn
Geographical focus England, England, Wales, England, England, England, England, England, Wales, England,
Wales, Northern Wales, Wales, Wales, Wales, Scotland Wales,
Northern Ireland, Scotland Northern Scotland Northern Northern
Ireland, Scotland Ireland, Ireland, Ireland,
Scotland Scotland Scotland Scotland
LTV cap 75% 75% 60% 75% 75% 75% 75% 75%
House price index Halifax Halifax Halifax Halifax Halifax Nationwide Halifax Halifax
Maximum asset 91.0% 94.0% 92,5% 92,5% 92,5% 93.0% 90.0% 93.5%
percentage
Minimum over- 109.9% 106.4% 108.1% 108.1% 108.1% 107.5% 111.1% 107.0%
collateralisation
Current asset 82.0% 77.3% 78.0% 78.2% 79.9% 84.5% 79.0% 78.0%
percentage
Current minimum 122.0% 129.4% 128.2% 127.9% 125.2% 118.3% 126.6% 128.2%
over-
collateralisation
In arrears Max. 40% if Max. 40% if No recognition Max. 40% if Full Max. 40% if Max. 40% if LTV Max. 40% if
accounting LTV < 75%, LTV < 75%, LTV < 75%, recognition if LTV < 75%, < 75%, max. LTV < 75%,
max. 25% if max. 25% if max. 25% if in arrears < 3 max. 25% if 25% if LTV > max. 25% if
LTV > 75%, LTV > 75%, or LTV > 75%, or months, LTV > 75%, or 75%, or repurch. LTV > 75%,
or repurch. repurch. repurch. otherwise 70% repurch. or repurch.
Maturity structure 12 months Hard bullet + Hard bullet + Hard bullet + 12 months 12 months soft Hard bullet + pre 12 months
soft bullet pre maturity test pre maturity pre maturity soft bullet bullet maturity test soft bullet
test test
Source: Bloomberg, Individual issuers, Crédit Agricole CIB
22 February 2011 38
Credit Focus
Credit Research contact details

Jean-François Paren Global Head of Credit Research / Telecom Analyst +33 1 41 89 33 95
Franck Bataille Utilities Analyst +33 1 41 89 14 86 Gwenaëlle Lereste Financials Analyst +33 1 41 89 06 90
Christophe Boulanger Autos Analyst +49 69 78 901 760 Harpreet Parhar CFA Credit Strategist +44 20 7214 5534
Caroline Brugère Industrials Analyst +33 1 41 89 88 38 Claire Poncet Dumont Retail Analyst +33 1 41 89 94 76
Axel de Chaurand Strategy Data Manager +33 1 41 89 04 65 Eric Sharper Industrials Analyst +44 20 7214 6546
Florian Eichert CFA Covered Bond Analyst +44 20 7214 6402 Guillaume Thomas Quantitative Analyst +33 1 57 87 02 80
Elisabeth Van Sante Financials Analyst +44 20 7214 6538
Certification
The views expressed in this report accurately reflect the personal views of the undersigned analyst(s). In addition, the undersigned analyst(s) has not and will not
receive any compensation for providing a specific recommendation or view in this report.
Florian Eichert
Disclosures
Company Disclosure A NOT IN USE
B NOT IN USE
Bank of Scotland None C The Company owned more than 5% of the total issued share capital of Crédit Agricole SA as of the end of the
second most recent month preceding the publication date of this report.
D NOT IN USE
E One or more companies in the Crédit Agricole S.A. group owned more than 3 % of the total issued share
capital of the Company as of the end of the second most recent trading day preceding the publication date of
this report.
F Crédit Agricole Cheuvreux and/or a company in the Crédit Agricole S.A. group is a market maker or a liquidity
provider for the financial instruments of the Company.
G Crédit Agricole Corporate and Investment Bank (CIB) and/or a company of the Crédit Agricole S.A. group has
been lead or co-lead manager over the previous 12 months in a publicly disclosed offer of or on financial
instruments of the Company.
H Crédit Agricole CIB and/or a company in the Crédit Agricole S.A. group has concluded or is party to a non
confidential agreement relating to the provision of investment banking services (except publicly disclosed offers
mentioned under G) to the Company during the past 12 months or that has given rise during the same period
to the payment of compensation or to the promise to get a compensation paid.
I This research has been communicated to the Company and following this communication, its conclusion has
been amended before its dissemination.
J An executive director of the Credit Agricole S.A. group is a director or board member of the company.
Recommendation System:
Performance of credit instruments: We express our expectation of how the 5Y CDS is going to perform vis-à-vis its
Fundamental credit assessment: We evaluate the fundamental sector. The timeframe of that recommendation is one month. When the analyst changes a recommendation he/she should
credit quality trend of an issuer for the next 12 months. indicate in the analysis when the last recommendation was made.
Crédit Agricole CIB’s Credit Research evaluates the potential Outperform: CDS spreads should outperform the sector performance.
changes of an issuer for the next 12 months and assigns a one year
Sectorperform: CDS spreads should perform in line with the sector performance.
forward rating based on S&P’s scale. This rating is to be compared
Underperform: CDS spreads should underperform the sector performance.
with the average long-term rating assigned by S&P and Moody’s.
Credit products rating distribution table:
Internal credit rating: We assign a rating to a company which (as at 19 January 2011) Companies where Crédit Agricole CIB provided
reflects the assessment of the credit quality by the credit analyst. All covered companies Investment Banking Services in past 12 months
The timeframe for the rating is one year. As a rating scale we use a
Count Percent Count Percent
scale similar to the one of S&P and Fitch, however, we substitute
the rating agencies plus or minus by high and low, ie. the Crédit Outperform 15 15% 5 33%
Agricole CIB scale uses AAA, High-AA, Mid-AA, Low-AA, High-A, Sectorperform 61 61% 23 38%
Mid-A etc. Underperform 24 24% 5 21%
Disclaimer
© 2011, CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK All rights reserved.
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22 February 2011 39

Credit Agricole Covered Bonds

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Credit Agricole Covered Bonds

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Credit Focus

CREDIT RESEARCH / COVERED BONDS 22 February 2011

Overview of covered bond legal frameworks

Risk factors and life cycle of a covered bond

Source: Crédit Agricole CIB

Life stages of a covered bond

Covered Cover Cover

Covered bond investors Covered bond investors Covered bond investors

Source: Crédit Agricole CIB

Florian Eichert, CFA, Senior Covered Bond Analyst

Main issuance structures in the covered bond

Structural diagram: universal bank model

Other assets Equity +

Source: Crédit Agricole CIB

Specialised bank model

Structural diagram: specialised bank model

Assets incl. shares in Liabilities

Source: Crédit Agricole CIB

SPV guarantees issuance by a universal bank model

Structural diagram: SPV guarantees universal bank issuance model

Other assets Equity +

Sale through equitable assignment

Cover assets Liabilities

Source: Crédit Agricole CIB

What the agencies are thinking – comparing ratios

Minimum, mean and average D-Factors per country, as at 03/02/11

Source: Fitch, Crédit Agricole CIB

Average TPIs of jumbo covered bonds per country

Source: Moody’s, Crédit Agricole CIB

Covered bond categories by country

Austria – Pfandbriefe + Fundierte

Issuance structure Pfandbriefe

Other assets Equity +

Substitute assets Oeffentliche

Source: ECBC, Crédit Agricole CIB

Legal framework strengths

Legal framework weaknesses

Overview of legal framework

Source: ECBC, Crédit Agricole CIB

Denmark – Saerligt Daekkede Obligationer

Legal framework strengths

Legal framework weaknesses

Overview of legal framework

Source: ECBC, Crédit Agricole CIB

Finland – Finnish Covered Bonds

Issuance structure through specialised mortgage

Legal framework strengths

Legal framework weaknesses

Overview of legal framework

Source: ECBC, Crédit Agricole CIB

France – Obligations Foncières (OF) and

Issuance structure Obligations Foncières Obligations à l’Habitat

Assets incl. shares in Liabilities Assets incl. shares in Liabilities

Societe de credit foncier (SCF) Claim

Over- Société de Financement à l’Habitat (SFH)

Legal framework strengths

Legal framework weaknesses

Overview of legal framework

Source: ECBC, Crédit Agricole CIB

France – Caisse de Refinancement de l’Habitat

Issuance structure CRH bonds

Other assets Equity + other Other assets Equity + other