New York, 07-17-97 -- Moody's Investors Service assigned Aa2/Prime-1 deposit ratings and a B bank financial strength rating to Frankfurter Hypothekenbank Centralboden AG (FHC). At the same time, Moody's assigned Aaa ratings to several public sector-secured bonds (oeffentliche Pfandbriefe) and to several mortgage bonds (Hypotheken Pfandbriefe) issued by FHC. MOODY'S ASSIGNS Aa2/P-1 BANK DEPOSIT RATINGS, B FINANCIAL STRENGTH RATING AND Aaa PFANDBRIEFE RATINGS TO FRANKFURTER HYPOTHEKENBANK CENTRALBODEN AG (FHC)
Moody's said that the long-term deposit rating for FHC Moody's Investors Service assigned a P-1 short-term bank deposit rating, P-1 short-term bank deposit rating, Aa2 long-term bank deposit rating and Aa2 long-term bank deposit rating to Frankfurter Hypothekenbank Centralboden AG. reflects the bank's sound fundamentals, as well as a franchise which is strongly enhanced by affiliation with the Deutsche Bank group. The explicit, strong letter of comfort (Patronatserklaerung) for FHC provided by Deutsche Bank AG (rated Aa1/Prime-1) is also incorporated into FHC's long-term deposit rating. Deutsche Bank has demonstrated its backing by providing financial and management support to its subsidiaries, when necessary, in the past.
In assigning the Pfandbrief ratings, Moody's said that it regards the credit characteristics of these debt instruments to be directly linked to the creditworthiness of FHC itself -- as defined by the Aa2/Prime-1 deposit rating and by the B bank financial strength rating. Nevertheless, Pfandbrief ratings are higher than long-term deposit and senior unsecured debt ratings ; Moody's said that this is because of the comparatively greater predictability of timely debt servicing and also because of the smaller potential loss-severity in the event of a default.
FHC is the result of the 1995 merger of two formerly separate and competing Deutsche Bank mortgage banking subsidiaries -- namely, Deutsche Centralbodenkredit AG, Cologne and Frankfurter Hypothekenbank AG, Frankfurt. A third subsidiary, Luebecker Hypothekenbank AG, remains separate, but it is linked to FHC by means of an intercompany operating agreement. The merger allowed for certain economies of scale and also for the acceleration of certain tax-loss carryforwards. Moody's said that it considers the affiliation with the Deutsche group to be an important franchise strength for this company. Integration, especially that of its commercial real estate-lending activities groupwide, provides better coordination, as well as uniform risk evaluation and controls. Thus, cross-selling and business-sharing opportunities exist between the commercial and mortgage banks-- a situation that creates an inherent advantage over the independent German mortgage-banking institutions. Funding and treasury operations are managed in cooperation with the Deutsche Bank group treasury. Interest rate mismatches are generally more modest compared with those of a number of immediate mortgage-bank peers.
Moody's added that asset quality indicators have recovered after the impact at Centalboden of the Schneider defaults in 1994, and are broadly regarded as being good. This is true principally because of the conservative lending criteria/guidelines prescribed by Germany's Mortgage Bank Act (Hypothekenbankgesetz) that FHC is required to abide by, Moody's said. Although FHC has a significant commercial real estate portfolio, the bank's ongoing business strategy is considered coherent, and the appetite for risk, within the framework of the Mortgage Bank Act, is also considered sufficiently cautious. Among German mortgage banks, and excluding the mixed banks, the FHC is the largest mortgage lender and among the largest public-sector lenders.
Net margins are thin Moody's noted, but are in line with the nature of the company's low-risk business profile; however earnings are enhanced by a lower-than-average cost-income ratio. At the same time, risk-adjusted profitability is acceptable and is in line with the sector, while economic capitalisation is sound, according to the rating agency.
FHC, headquartered in Frankfurt, had year-end 1996 consolidated group assets of DM 97 billion (US$ 60 billion).
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