London, 04-07-98 -- Moody's Investors Service assigned Aa2/Prime-1 deposit ratings and a B bank financial strength rating to Deutsche Hypothekenbank Frankfurt AG (Deutsche Hyp). At the same time, Moody's assigned Aaa ratings to several public sector-secured bonds (oeffentliche Pfandbriefe) and Aaa ratings to several mortgage bonds (Hypothekenpfandbriefe) issued by Deutsche Hyp. MOODY'S ASSIGNS Aa2/P-1 BANK DEPOSIT RATINGS, B FINANCIAL STRENGTH RATING AND Aaa PUBLIC-SECTOR AND MORTGAGE PFANDBRIEF RATINGS TO DEUTSCHE HYPOTHEKENBANK FRANKFURT AG
Moody's said that the long-term deposit rating for Deutsche Hyp is underpinned by the mortgage bank's affiliation with the Dresdner Bank group, thereby safeguarding the mortgage bank's franchise defensibility. Deutsche Hyp benefits from explicit support provided by its parent bank, Dresdner Bank AG (rated Aa1/P-1/B+) in the form of a Patronatserklaerung (letter of comfort). Deutsche Hyp's sound financial fundamentals are reflected in the B financial strength rating.
Moody's commented that these ratings already take into account the forthcoming merger between Deutsche Hyp and Dresdner Bank's other domestic mortgage bank subsidiaries -- Hypothekenbank in Hamburg AG and Norddeutsche Hypotheken und Wechselbank AG. The merger is planned for mid 1998 and is expected to be retroactive as of January 1, 1998. The resultant mortgage bank, with combined total assets of approximately DM 154 billion (US$ 86 billion) as of December 31, 1997, will be called Deutsche Hyp Deutsche Hypothekenbank Frankfurt AG. Dresdner Bank's three mortgage banks already have well alligned IT platforms and management information systems. Moody's expects the merger to lead to a relatively more balanced risk profile and will certainly enable the merged bank to benefit from a greater critical mass. Whilst Deutsche Hyp's ratings incorporate the anticipated longer-term merger effects and benefits, Moody's also expects Deutsche Hyp to maintain a balanced growth and diversification strategy -- both domestically and cross-border.
Deutsche Hyp's cost structure is broadly in line with the German banking-sector average. However, new business growth has been on real estate related lending rather than solely on rapid public-sector loan growth. Moody's noted a marked diversification of new business origination over recent years which has resulted in a strong relative decline in new business introduced via the parent bank. Deutsche Hyp's asset quality indicators, specifically those related to the bank's commercial and residential real estate loan portfolios, have returned to more acceptable levels after somewhat heavier loan write-offs in 1993 and 1994. In this context, the rating agency added that it will carefully monitor the higher loan-to-value exposures to certain commercial real estate borrowers. Modest but acceptable risk-adjusted recurring profitability reflects a strong emphasis on traditional real estate lending. Deutsche Hyp's interest rate mismatch policies are guided by market risk management parameters that are compatible with those of the Dresdner Bank Group. Core capitalisation is acceptable, while economic capital is boosted marginally by modest liquid hidden reserves.
In assigning the Pfandbrief ratings, Moody's said that it regards the credit characteristics of these debt instruments to be directly linked to the overall longer-term creditworthiness of Deutsche Hyp -- as defined primarily by the Aa2 deposit 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 greatly reduced potential loss-severity in the event of a default.
Deutsche Hypothekenbank Frankfurt AG, headquartered in Frankfurt, Germany, is 97% owned by Dresdner Bank AG. The mortgage bank is one of Germany's largest mortgage lenders. Deutsche Hyp had unaudited total assets of approximately DM 95 billion (US$ 53 billion) as of December 31, 1997.
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