Rating review with direction uncertain extends to three rated subsidiaries and hybrid securities
Frankfurt am Main, December 18, 2018 -- Moody's Investors Service has today placed on review with direction uncertain
all long term ratings and rating inputs of Norddeutsche Landesbank GZ
(NORD/LB) and its rated subsidiaries, specifically Deutsche Hypothekenbank
(Actien-Gesellschaft), NORD/LB Luxembourg S.A.
Covered Bond Bank and the former Bremer Landesbank Kreditanstalt Oldenburg,
whose outstanding debt has been assumed by NORD/LB. In addition,
Moody's has placed on review for downgrade the Prime-2 short-term
debt and deposit ratings of NORD/LB and its rated subsidiaries.
The rating actions follow NORD/LB's ad-hoc announcement on
3 December, providing an update on the bidding process to offer
private investors a capital participation and stating that a further sizeable
reduction of its impaired shipping loans may lead to a balance sheet loss
and a temporary decline in its capital ratios. Moody's said
that it expects clarity on the success of planned measures to stabilise
and recapitalise the bank within several weeks, whereby the uncertain
outlook also factors in the risk of failure or of a material delay of
the planned measures, either of which could raise regulatory pressures
on NORD/LB to find alternative sources of capital funds.
Concurrently, Moody's has also placed on review with direction
uncertain the Caa1(hyb) ratings of NORD/LB's hybrid instruments
issued as non-cumulative preference shares through its funding
vehicles Fuerstenberg Capital Erste GmbH and Fuerstenberg Capital II GmbH.
Moody's Aa1 backed ratings for instruments that benefit from the
grandfathering of statutory guarantees remained unaffected by today's
rating action.
For a list of all affected ratings, please refer to the end of this
press release.
RATINGS RATIONALE
- RATIONALE FOR INITIATING THE REVIEW ON THE LONG- AND SHORT-TERM
RATINGS
The announcement of NORD/LB published on 3 December 2018 demonstrates
the bank's continued very high vulnerability to downside risk for
its shipping segment and the near-term pressure on its loss absorption
buffers, if planned management actions were to fail to be implemented
in the near term. Specifically, Moody's said that the
announcement reflects the growing urgency to raise additional funds to
provide higher coverage for NORD/LB's underperforming ship finance
loans. In the same announcement, NORD/LB said that it is
in the process of evaluating several offers received from private investors
in the context of a bidding process initiated at the end of September
2018.
In this context, the placement of the long-term ratings on
review with direction uncertain reflects the potential for diverging outcomes
for NORD/LB's solvency, depending on the success of its stakeholders'
efforts to attract fresh capital from a new shareholder and, at
the same time, accelerate a clean-up of the bank's
balance sheet from underperforming ship finance assets.
The placement of the review for downgrade of the short-term debt
and deposit ratings principally reflects the same uncertainty.
However, the negative direction includes Moody's expectation
of the upside for the long-term ratings being limited to two rating
notches which excludes the possibility of an upgrade of the short-term
ratings to Prime-1.
- THE REVIEW UNCERTAIN OF NORD/LB'S LONG-TERM RATINGS WILL
PRIMARILY FOCUS ON THE BCA
The review with direction uncertain of NORD/LB's and its affiliates'
long-term ratings will mainly focus on the repositioning of the
banks' b2 baseline credit assessment (BCA). This will be
driven by the success (or failure) of the ongoing efforts to clean up
and recapitalise NORD/LB.
In this context, Moody's will take into account to what degree
planned assets sales will improve NORD/LB's asset risk profile,
and whether upcoming developments will lead to a higher (or lower) capitalisation
of the group.
In addition, Moody's does not rule out to review other components
of NORD/LB's and its affiliates' ratings. Specifically,
in a downside scenario where NORD/LB's owners cannot close a transaction
with a new stakeholder successfully, Moody's will take into
account to what degree the bank may require capital support which may
be provided through the cross-sector support mechanism of Sparkassen-Finanzgruppe.
This could lead to a more favourable assessment of Moody's high
affiliate support assumptions, which currently provides two notches
of rating uplift from NORD/LB's BCA, lifting the Adjusted
BCA to ba3.
- FOCUS OF THE REVIEW UNCERTAIN OF NORD/LB'S HYBRID RATINGS
The rating action on NORD/LB's preference shares was triggered by ad-hoc
announcements of the two Fuerstenberg issuing vehicles on 4 December,
stating that the instruments will be affected by a large loss of NORD/LB
for the financial year 2018, specifically a large balance sheet
loss in the unconsolidated accounts under local generally accepted accounting
principles (local GAAP). Such a loss would have to be shared by
investors in the non-cumulative preference shares issued by the
two Fuerstenberg entities both, from suspended coupon payments and
from a write-down of the principal of these instruments.
During the review period, Moody's assessment will focus on
the likely time horizon and the degree to which these instruments are
at risk of suffering coupon suspension and a principal write-down.
Such risks may depend on 1) the size of losses to be expected on NORD/LB's
2018 local GAAP results; 2) the potential for costly transactions
at NORD/LB during 2019, which may create further local GAAP losses;
3) management decisions to use fresh capital funds to create reserves
as part of the planned capital measures, that could be released
at a later stage and used to reverse any temporary principal write down;
and 4) the potential risk from NORD/LB's possible decision to call
back these instruments for reasons relating to their reducing recognition
as regulatory capital.
In a more benign scenario for capital note holders, NORD/LB's preference
shares could benefit from the successful near-term implementation
of its de-risking and capital-strengthening measures,
which could lead to an improvement of NORD/LB's standalone credit
strengths and thus its Adjusted BCA, from which these instruments
are currently notched off.
More negative developments for capital note holders may prompt Moody's
to return to an expected-loss rating approach, instead of
its current approach of notching the hybrid instruments' ratings down
from NORD/LB's Adjusted BCA.
- WHAT COULD CHANGE THE RATINGS - UP / - DOWN
Upside for NORD/LB's and its rated subsidiaries' ratings during
the review period will materially depend on an upgrade of the banks'
BCA and Adjusted BCA. The result of Moody's Advanced Loss
Given Failure analysis already yields the best possible outcome for NORD/LB's
ratings, and bears no further upside for deposits and senior unsecured
debt.
A BCA upgrade will likely be prompted, if the bank's owners
find and agree on a preferred bidder for their planned measures of selling
nonperforming loans and injecting fresh capital. This involves
that a transaction with a new shareholder can be closed within the short
time frame of several weeks, as has been indicated by NORD/LB.
Moody's may downgrade NORD/LB's and its rated subsidiaries'
ratings if NORD/LB's BCA and Adjusted BCA are downgraded.
Downside for NORD/LB's BCA would arise if the planned de-risking
and recapitalisation measures were to fail or to get materially delayed.
In this case, NORD/LB may be under rising regulatory pressure to
address its capitalisation in early 2019 from other sources which would
place pressure on the b2 BCA.
The impact of a BCA downgrade on the long-term and short-term
ratings could be reduced or even offset by Moody's re-assessment
of affiliate support, e.g. if higher support assumptions
were justified by improved visibility of credible capital- and/or
risk-reduction measures undertaken by Sparkassen-Finanzgruppe.
LIST OF AFFECTED RATINGS
..Issuer: Norddeutsche Landesbank GZ
Placed On Review:
.... Adjusted Baseline Credit Assessment,
Placed on Review Direction Uncertain, currently ba3
.... Baseline Credit Assessment, Placed
on Review Direction Uncertain, currently b2
.... LT Counterparty Risk Assessment,
Placed on Review Direction Uncertain, currently Baa2(cr)
.... ST Counterparty Risk Assessment,
Placed on Review for Downgrade, currently P-2(cr)
.... LT Counterparty Risk Rating, Placed
on Review Direction Uncertain, currently Baa2
.... ST Counterparty Risk Rating, Placed
on Review for Downgrade, currently P-2
.... LT Issuer Rating, Placed on Review
Direction Uncertain, currently Baa2 , Changed To Rating Under
Review From Negative
.... LT Bank Deposit Rating, Placed
on Review Direction Uncertain, currently Baa2 , Changed To
Rating Under Review From Negative
.... ST Bank Deposit Rating, Placed
on Review for Downgrade, currently P-2
....Junior Senior Unsecured Regular Bond/Debenture,
Placed on Review Direction Uncertain, currently Ba1
....Subordinate Regular Bond/Debenture,
Placed on Review Direction Uncertain, currently B1
....Senior Unsecured Regular Bond/Debenture,
Placed on Review Direction Uncertain, currently Baa2 , Changed
To Rating Under Review From Negative
....Subordinate Medium-Term Note Program,
Placed on Review Direction Uncertain, currently (P)B1
....Junior Senior Unsecured Medium-Term
Note Program, Placed on Review Direction Uncertain, currently
(P)Ba1
....Senior Unsecured Medium-Term Note
Program, Placed on Review Direction Uncertain, currently (P)Baa2
....Other Short Term, Placed on Review
for Downgrade, currently (P)P-2
.... Commercial Paper, Placed on Review
for Downgrade, currently P-2
Outlook Actions:
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: Bremer Landesbank Kreditanstalt Oldenburg
GZ
Placed On Review:
....Junior Senior Unsecured Regular Bond/Debenture,
Placed on Review Direction Uncertain, currently Ba1
Outlook Actions:
....Outlook, Changed To Rating Under
Review From No Outlook
..Issuer: Deutsche Hypothekenbank (Actien-Gesellschaft)
Placed On Review:
.... Adjusted Baseline Credit Assessment,
Placed on Review Direction Uncertain, currently ba3
.... Baseline Credit Assessment, Placed
on Review Direction Uncertain, currently b2
.... LT Counterparty Risk Assessment,
Placed on Review Direction Uncertain, currently Baa2(cr)
.... ST Counterparty Risk Assessment,
Placed on Review for Downgrade, currently P-2(cr)
.... LT Counterparty Risk Rating, Placed
on Review Direction Uncertain, currently Baa2
.... ST Counterparty Risk Rating, Placed
on Review for Downgrade, currently P-2
....LT Issuer Rating, Placed on Review
Direction Uncertain, currently Baa2, Changed To Rating Under
Review From Negative
....ST Issuer Rating, Placed on Review
for Downgrade, currently P-2
....LT Bank Deposit Rating, Placed on
Review Direction Uncertain, currently Baa2 , Changed To Rating
Under Review From Negative
....ST Bank Deposit Rating, Placed on
Review for Downgrade, currently P-2
....Senior Unsecured Regular Bond/Debenture,
Placed on Review Direction Uncertain, currently Baa2, Changed
To Rating Under Review From Negative
....Junior Senior Unsecured Regular Bond/Debenture,
Placed on Review Direction Uncertain, currently Ba1
....Subordinate Medium-Term Note Program,
Placed on Review Direction Uncertain, currently (P)B1
....Other Short Term, Placed on Review
for Downgrade, currently (P)P-2
....Senior Unsecured Medium-Term Note
Program, Placed on Review Direction Uncertain, currently (P)Baa2
....Subordinate Regular Bond/Debenture,
Placed on Review Direction Uncertain, currently B1
Outlook Actions:
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: Fuerstenberg Capital Erste GmbH
Placed On Review:
....Non-cumulative Preferred Stock,
Placed on Review Direction Uncertain, currently Caa1 (hyb)
Outlook Actions:
....Outlook, Changed To Rating Under
Review
..Issuer: Fuerstenberg Capital II GmbH
Placed On Review:
....Non-cumulative Preferred Stock,
Placed on Review Direction Uncertain, currently Caa1 (hyb)
Outlook Actions:
....Outlook, Changed To Rating Under
Review
..Issuer: NORD/LB Luxembourg S.A. Covered
Bond Bank
Placed On Review:
.... Adjusted Baseline Credit Assessment,
Placed on Review Direction Uncertain, currently ba3
.... Baseline Credit Assessment, Placed
on Review Direction Uncertain, currently b2
.... LT Counterparty Risk Assessment,
Placed on Review Direction Uncertain, currently Baa2(cr)
.... ST Counterparty Risk Assessment,
Placed on Review for Downgrade, currently P-2(cr)
.... LT Counterparty Risk Rating, Placed
on Review Direction Uncertain, currently Baa2
.... ST Counterparty Risk Rating, Placed
on Review for Downgrade, currently P-2
.... LT Issuer Rating, Placed on Review
Direction Uncertain, currently Baa2 , Changed To Rating Under
Review From Negative
.... ST Issuer Rating, Placed on Review
for Downgrade, currently P-2
.... LT Bank Deposit Rating, Placed
on Review Direction Uncertain, currently Baa2 , Changed To
Rating Under Review From Negative
.... ST Bank Deposit Rating, Placed
on Review for Downgrade, currently P-2
.... Senior Unsecured Medium-Term Note
Program, Placed on Review Direction Uncertain, currently (P)Baa2
Outlook Actions:
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: Norddeutsche Landesbank GZ, New York
Branch
Placed On Review:
.... LT Counterparty Risk Assessment,
Placed on Review Direction Uncertain, currently Baa2(cr)
.... ST Counterparty Risk Assessment,
Placed on Review for Downgrade, currently P-2(cr)
.... LT Counterparty Risk Rating, Placed
on Review Direction Uncertain, currently Baa2
.... ST Counterparty Risk Rating, Placed
on Review for Downgrade, currently P-2
.... Commercial Paper, Placed on Review
for Downgrade, currently P-2
Outlook Actions:
....Outlook, Changed To Rating Under
Review
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Katharina Barten
Senior Vice President
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
