Funding during the financial crisis

Transcription

1 Funding during the financial crisis 2 nd G8 International Workshop on Implementing the G8 Action Plan Frankfurt 12. November 20 Horst Seißinger 1

2 Funding at KfW Status quo at the onset of the financial crisis I - KfW has for a long time been the biggest non government issuer in Europe - Over the last years KfW has been increasing its funding volumes successively 245** Estimated fund raising 20 in EUR bn * United Kingdom Italy France Germany Spanien KfW Netherlands Greece *Rescue plans for financial industry not included; Source: Deutsche Bank and German Finance Agency B elgium Austria e Benchmark Bonds Public Transactions Private Placements 2

3 Funding at KfW Status quo at the onset of the financial crisis II - Development of the years before the financial crisis: Higher issuance volumes were achieved by accessing more markets, broadening the range of issuance currencies and issuing more bonds - Effect of the financial crisis: Issuance activity reduced back to pre-boom years # of bonds issued, left # of currencies, right 10 3

4 Effects of the financial crisis: Dramatically changed funding environment for frequent borrowers Fundamental change in funding environment in October 20 - Flight to quality during 2007 and most of 20 - After Lehman bankruptcy flight to liquidity hurt all quality assets except Treasuries and Bunds - Soon thereafter supply fears started pushing spreads even wider - On the demand side some investor classes disappeared completely (i.e. Hedge Funds) or reduced their investments dramatically (i.e. emerging markets central banks) Necessity to pay higher funding spreads and diversify the investor base in basis points Aug 07 Oct 07 Dec 07 Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct secondary spread vs. mid swaps 5y KfW-EUR benchmark 4

5 KfW s response to changed funding environment Issuance Strategy: Focus on liquid Global bonds in core currencies - EUR and USD Benchmark programmes allowed reliable market access also in difficult markets Possibility to use short issuance windows through flexible timing (especially important in Q4/ and Q1/) Syndication process allowed targeting of specific (regional) markets Flexibility to pay higher spreads and (theoretical) backstop through underwriting commitment of Lead Managers gave comfort to come to the market even in distressed Q1/ - Front loading in difficult Q1/ (even though expensive at the time) eased supply fears in Q2-Q4/ 60% 90% 50% 75% 40% 60% % 45% 20% e % % of funding in benchmark format, left % of funding in core currencies (EUR, USD), right 5

6 KfW s response to changed funding environment: Investor base: strong home market and domestic investors - Reliability of deep home market Inclusion of Senior Co-Leads allowed increased and more granular demand from home market Rediscovery of the Schuldschein to access more investors in the German home market - Reliability of domestic investor bases - In our other core currency USD throughout the whole crisis - Gradual reopening of second tier established markets with strong domestic investor bases (AUD, CHF, GBP, HKD, JPY, NOK and SGD) while markets dependent on offshore investors were hurt 60% 45% % 15% 0% % of German allocation in EUR benchmarks % of "Americas" allocation in USD globals 6

7 KfW s response to changed funding environment: Lessons learnt - Be patient - Have the relevant instruments ready (programs, documentation etc.) - Be prepared for a quick execution - Accept market prices - Try to offer different products - Do your homework with respect to marketing (investor relations) - Think local and global - Establish a good relationship with local banks / investors and international investment banks / investors 7