TAILIEUCHUNG - Global Credit Research: Danish Covered Bonds – A Primer

Overseas investors bought a net billion of stocks and bonds during 2007, compared with the previous record of billion in 2006. The current year has seen net outflows in the first 9 months totaling billion. The bank rate is currently 6% (July 2008) and longer-term deposit rates have risen around 50 basis points (bp) to in recent months. Real estate markets have been buoyant, although they have cooled recently, and the banking system remains sound and well capitalized. In March 2008, the capital adequacy ratio stood at , well above the 8% minimum prescribed under the. | Global Credit Research UniCredit Markets Investment Banking Sector Report August 6 2008 Covered Bonds Danish Covered Bonds - A Primer In the first part of this Sector Report we provide an overview of the Danish economy including the housing market. Furthermore we focus on the Danish covered bond market where various regulation changes have taken place. In addition we highlight the inherent security mechanisms bond types and give a short investment example. In the second part we introduce the five largest issuers in the Danish covered bond market. The creation of the Danish covered bond market dates back more than 200 years as it was established after the great fire in Copenhagen in 1795 to finance the large reconstruction costs. In the long tradition of Danish covered bonds a default or loss has never occurred. At year-end 2007 the outstanding volume of Danish covered bonds amounted to EUR 345 bn. The Danish market is the second largest market after the German covered bond market as well as the second eldest. The reason for the gap between Germany and Denmark is the nonexistence of public sector covered bonds in Denmark which make up the largest part in the German market. In terms of mortgage covered bonds the Danish market is by far the largest ahead of the Spanish and the German market. Currently the Danish economy shows signs of weakness which could be further intensified by subprime effects after years of high GDP growth rates strongly increasing house prices and a low unemployment rate. Since 2007 house prices have declined significantly and led in combination with the overall weakening economy to negative GDP growth rates in Q4 2007 and Q1 2008. Roskilde Bank a Danish regional bank became the second casualty in Denmark after Bank Trelleborg which was affected by large-scale write-downs. In order to safeguard the reliability of the Danish banking market the Danish National Bank provided a liquidity guarantee of DKK 750 mn to Roskilde Bank. Furthermore Roskilde

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