Despite getting an increase in the liquidity support originally pledged toward saving Hypo Real Estate (HRE), Pfandbriefe tied to the bank continue to suffer from disruptive pricing, Dresdner Kleinwort analysts said. The increase was to >50 billion ($68.4 billion) from >35 billion.

Following the new liquidity injection, Standard & Poor's placed the ratings of the bank and its member affiliate, Depfa, on negative watch. S&P said that the support operation could involve substantial restructuring and, possibly, reductions in the banks' size.

Moody's Investors Service added that Depfa could face downgrades by several notches if the group fails to establish a more sustainable funding framework and business strategy over the next few months. The HRE bank could also face negative rating actions, albeit on a less significant scale.

Several Pfandbriefe are due to mature in 2009. Servicing them will have high priority, said Dresdner.

"The company news has had serious knock-on effects for the Pfandbriefe of DEPFA and HRE, even in the absence of any negative headlines for the product itself," Dresdner analysts wrote. "There are no negative reports regarding the quality of the assets in the cover pools, nor has the credibility of the product itself made the headlines. Nevertheless, this underlines once again that the Pfandbriefe remains closely tied up with the reputation and credit standing of the issuer."

HRE's CEO Georg Funke has stepped down and Axel Wieandt will takeover the role. Replacement of the remaining board members is also expected to follow.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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