A conversation with KfW

RICHARD KELLY: Thank you, everyone, for joining us for our next installment of our 5x10 Issuers podcast series. It's great to be joined today by Alexander Molinsky, Vice President of Fixed Income Origination and Syndication for TD Securities, and Tim Armbruster, head treasurer of KFW. We're seeing different regions, different sectors, return to normal at varying paces. But with a global sense, I think, of getting through some key hurdles and moving to the next stage of the recovery. Because of that, I think it's an opportune time to be discussing outlooks. We see individuals, investors, and organizations trying to determine how to take those next steps successfully, given we still have a significant amount of uncertainty to navigate. So today, we wanted to delve into how KFW is looking at their priorities and goals for the upcoming year, as we all take that next step forward. With that, I will hand things over to Alex Molinsky to introduce our guest.

ALEXANDER MOLINKSY: Thank you very much, Richard. As said, we're excited to have Tim Armbruster with us today. With over 20 years of capital market experience and leading roles across many financial institutions, Tim became treasurer of KFW Group in May 2020. He has since been responsible for allowing funding activity of one of the largest SSA issues globally, navigating KFW through a challenging environment while accomplishing around 80 billion euros of annual funding this year. It's an absolute pleasure to have you with us today. Welcome, Tim.

TIM ARMBRUSTER: Yeah. Hello, Alex, and thank you very much for the introduction. Of course, thank you very much for having the opportunity to participate on today's podcast. And maybe let me also say this, by the start, thank you very much also for TD's support of the business, especially in 2021.

ALEXANDER MOLINKSY: Thank you very much, Tim. So Tim, the last 18 months or so have been challenging and unpredictable for many of us. Now that we see COVID support measures for the economy fading into the background, what do you think are going to be the biggest challenges facing KFW over a 12-month period in the future?

TIM ARMBRUSTER: Yeah. First of all, I would like to mention our very strong financial figures, which we have released last week, our 9-month results. They have been, to be honest, for Q3, best ever quarters. We had very strong business. We had exceptionally good results, and of course, we have a very solid capital base. And why I mention this is because I think it's an excellent base and starting point for the challenges which are ahead of us. And we have to very much mention also, the public. The most important, of course, are the climate and environmental action, and of course, especially also for Germany, digitalization and innovation. And for me, for us, I think the economic goal is clear here. Germany's industry needs to convert its processes to ensure sustainability. And of course, our country needs to ensure that it remains internationally competitive over the long term. And what it means for KFW? I mean, KFW is the German flagship promotion bank. And it's, of course, for us, important that we deliver on our promises to our stakeholders-- and, of course, to play an active and positive part in the transformation and transition of the German economy with our global footprint.

RICHARD KELLY: So Tim, I wonder if we could delve in. I mean, you talked about some of the challenges in going through. But obviously, there are opportunities as well, in terms of that change and in terms of where you're directing that investment. Could you talk through some of the opportunities you see over the next 12 months?

TIM ARMBRUSTER: Yeah. Richard, I think you mentioned the challenges. Of course, forming also our opportunities for the future. And what I see are challenges, a lot, in the future, but also therefore opportunities. And one thing, probably to mention first, is that in Germany, we are forming, at the moment, a new government. And this is also, for the first time in German history, likely a three party government. So this is also something new for Germany. But overall, I think the direction of travel is relatively clear. There is a broad consensus, especially in the public, that we face a twin challenge. One, of course, is the green transformation. And of course, second, we need to digitize and innovate. And there's also broad consensus that financing requirements are large. They are significant. And the government alone can't refinance and scope all these challenges. So public markets will play, from our view, an important role. And that is also where KFW can play a constructive role and provide a positive, for example, contribution to combine the political agenda with the need of the capital markets. And personally, I think that's an exciting task and an exciting opportunity for KFW.

RICHARD KELLY: Thanks. I wonder, if we delve in there a little bit and maybe just look at the specific funding, when you're looking at your 2022 funding outlook, what sort of specifics do you have at this point when you're looking in there? Are there areas in there that you think are going to be most exciting from a funding perspective?

TIM ARMBRUSTER: First of all, we look across funding perspective with the challenges in front of us, but of course, we're following very close, of course, markets. And I personally think that markets will be more volatile in 2022. One part-- if, of course, the current discussion and change with regards to inflation, so the whole tapering topic. But also, very clear is that, from a KFW perspective, we feel very prepared with regards to our, for example, broad international investor base. And of course, there are our diversified instruments, with regards to currencies and to bond products. One thing that is key for our funding plans in 2022-- the KBW green bonds will remain a vital part of our overall funding strategy. If you look at this year, in 2021, almost 20% of our funding program is green. And our funding program, this year, will end slightly above 80 billion. So for 2022, I personally expect that we have higher-- a little bit more targets than we had in 2021. But also, to be fair, we will announce the funding plans for 2022 by mid of December this year.

RICHARD KELLY: Thanks. And I wonder, trying to think about some of the large structural changes that COVID did have-- obviously, across economies, across funding, across markets-- you know, we've seen a lot of those impacts. And throughout the crisis, you had a lot of responsibilities given to KFW in terms of organizing a lot of the COVID-19 support measures from the German government. So I wonder, what sort of structural impact did that have on your funding itself, as you're trying to now kind of take these next steps?

TIM ARMBRUSTER: Yeah. As you mentioned, we had a quick team up with the German government. And the German government provided KFW with the necessary financing through the government owned economic stabilization funds and short-form. That's the WSF. And in a nutshell, we ring fenced the needs of the COVID-19 program via the WSF, the economic stabilization fund. So for KFW in 2020 and 2021, it had no impact on the overall funding targets. So we have, in total, if you look at what was received from the WSF and if you look at the outstanding today, 36 billion euros' equivalent. I think this has worked out very well. And if I look now at the current COVID-19 programs, the dynamics are much lower. They have gone close to zero. So I think, currently, there's not much more that we can expect here from the future.

RICHARD KELLY: Thanks. And I guess, if we think about that future, and we think about one area that I think has significantly changed, it's the focus on ESG and sustainability. I think that seems to be an area that's significantly accelerated throughout the course of this crisis. We've seen issuance pick up significantly. We've seen focus, both from investors and issuers, really come through there. So what do you see from your side as, really, the biggest trend and evolution that we're likely going to have to be on the look out for in this space?

TIM ARMBRUSTER: Yeah, absolutely. It's an absolutely holistic trend. What we can see-- our view is, overall, that ESG investors are more focusing also on holistics-- on the overall strategies, less on pure product, like the pure green bond product. And of course, this is something which also fits very much to KFW. We take a lot of efforts with regards to our ESG rating, and we want to be among the top of our peers here. And this is a clear management target that we have also announced. And, of course, looking on our all-ESG footprint, for example, we have an environmental investment ratio of currently over 50%. And of course, every euro and dollar an investor invests in KFW bonds contributes to at least one of the SDG goals. The KFW is a so-called part of the sustainable finance strategy of the Federal Republic of Germany. KFW will become a transformative promotional bank. And for this, we are in the middle of the rollout of our sustainable finance concept. And clearly, we want to become a leading institution with regards to impact management, but also with regards to impact reporting. And this fits, then, again, together with what I said at the start with regards to SDG goals. And also, it is clearly showing the investor what he contributes, with regards to investing in KFW.

ALEXANDER MOLINKSY: Excellent insights, Tim. Thank you very much for all these views back onto the year 2021. And it certainly doesn't sound like 2022 will be a boring year with the challenges ahead. As you've mentioned, the new government in Germany, the evolving ESG space, and certainly KFW's role as the flagship promotional bank of Germany. I'm sure you will continue to give guidance to investors, markets, and support your shareholders. As we come to the end of the podcast, Tim, is there anything else you want to mention?

TIM ARMBRUSTER: Yeah. Again, I would like to say thank you for the opportunity. And of course, good luck for all the other podcasts.

ALEXANDER MOLINKSY: Thank you very much, Tim. Thank you very much, Richard.

RICHARD KELLY: Thank you, everyone. Look forward to talking to you soon.

This podcast should not be copied, distributed, published or reproduced, in whole or in part. The information contained in this recording was obtained from publicly available sources, has not been independently verified by TD Securities, may not be current, and TD Securities has no obligation to provide any updates or changes. All price references and market forecasts are as of the date of recording. The views and opinions expressed in this podcast are not necessarily those of TD Securities and may differ from the views and opinions of other departments or divisions of TD Securities and its affiliates. TD Securities is not providing any financial, economic, legal, accounting, or tax advice or recommendations in this podcast. The information contained in this podcast does not constitute investment advice or an offer to buy or sell securities or any other product and should not be relied upon to evaluate any potential transaction. Neither TD Securities nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this podcast and any liability therefore (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed.