London, 06-18-96 -- Moody's Investors Service assigned Aa3/Prime-1 deposit ratings and a C+ financial strength rating to Mnchener Hypothekenbank eG (MHB). At the same time, Moody's rated several public-sector secured Pfandbrief and mortgage Pfandbrief obligations issued by MHB at Aaa and Aa1, respectively. Moody's said that the Pfandbrief ratings reflect the credit characteristics of these debt instruments, which are directly linked to the creditworthiness of MHB itself -- as defined by the bank's Aa3/Prime-1 deposit rating and C+ financial strength rating. The Pfandbrief ratings are higher than the long-term deposit rating owing to comparatively greater timeliness predictability for debt servicing and especially to the smaller loss-severity potential in the event of a default. Regarding the rating differential between public sector-secured bonds and mortgage bonds, Moody's cited the comparatively lower risk characteristics of the public sector loan pool covering public sector-secured bonds. MOODY'S ASSIGNS Aa3/P-1 BANK DEPOSIT RATINGS AND C+ FINANCIAL STRENGTH RATING TO MüNCHENER HYPOTHEKENBANK, Aaa TO THE BANK'S PUBLIC-SECTOR SECURED BONDS (OEFFENTLICHE PFANDBRIEFE) AND Aa1 TO ITS MORTGAGE BONDS (HYPOTHEKENPFANDBRIEFE)
Moody's stated that the deposit ratings and financial strength rating of MHB reflect extremely sound asset quality, characterised both by one of the lowest loan-to-value profiles among German mortgage banks, and, at the same time, a relatively low reliance on commercial real estate financings. Furthermore, MHB maintains a strong business franchise as a result of its affiliation to the German cooperative banks (FinanzVerbund).
The FinanzVerbund consists of almost 2,500 Raiffeisenbanken and Volksbanken (primary banks) throughout Germany. Almost 90% of new residential mortgage loans at MHB are originated via these primary banks. The primary banks are frequently required to retain any higher loan-to-value elements of such new residential mortgage business. MHB is therefore highly focused on being a long-term residential mortgage provider, almost always in conjunction with the primary banks throughout Germany. MHB competes directly against three other mortgage lenders within the Finanzverbund (one national and two regional lenders). Unlike the case with many other private mortgage banks in Germany, MHB's public-sector lending is not being pursued actively. The bank has no significant crossborder activities.
Moody's added that MHB's earning power -- which is low even by German mortgage-bank standards -- is shaped both by the strong focus on low-spread residential mortgage lending and by the significant level of origination fees payable to the primary banks (translated in high net commission costs). Although core capitalization is also low by international standards, a low balance-sheet risk profile and recurring earnings predictability mitigate to a large extent this weakness. The rating agency expects MHB to maintain a conservative approach to its business franchise and to avoid diversification in significantly higher-risk activities.
Mnchener Hypothekenbank eG, headquartered in Mnchen, is a registered cooperative which operates under the German Mortgage Banking Act (Hypothekenbankgesetz). The bank has over 80,000 cooperative members (comprised of individuals, primary banks and cooperative central banks). MHB had total consolidated assets of DM 25 billion (US$ 18 billion) as of December 31, 1995.
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