MOODY'S COMMENTS ON THE ANNOUNCED INTENTION OF LANDESBANK SCHLESWIG-HOLSTEIN (RATED Aa1/P-1/C+) TO MERGE WITH HAMBURGISCHE LANDESBANK (RATED Aa1/P-1/C+)
The proposed merger between Landesbank Schleswig-Holstein (LB Kiel; rated Aa1/P-1/C+) and Hamburgische Landesbank (HLB; rated Aa1/P-1/C+) could, if pursued, provide economies of scale in the future, Moody's Investors Service said. However, the impact on the banks' debt and deposit, as well as financial strength ratings is likely to be neutral, given the potential for some concentration risks in the loan portfolio, especially to the shipping industry, and the fact that their wholesale banking franchise would remain somewhat vulnerable, the rating agency added.
Moody's comment follows the announcement by the owners of LB Kiel that they have mandated the bank's managing board to develop a merger concept in co-operation with the managing board of HLB. LB Kiel already owns 49.5% of HLB, which it bought from the State of Hamburg in 1997, and is on the receiving end of a put option on the remainder of Hamburg's stake in HLB.
The Aa1/P-1 debt and deposit ratings of both LB Kiel and HLB are based on the banks' ownership structure and take account of the legal support obligations of their public-law owners, Moody's said. HLB's Aa1 deposit and debt ratings are currently based on the ownership of LB Kiel as well as the Federal State of Hamburg. In turn, LB Kiel's ultimate creditworthiness is largely based on its own joint and several support providers - Westdeutsche Landesbank GZ (Aa1/P-1/C-) and Landesbank Baden-Wuerttemberg (Aaa/P-1/B-) - rather than on the State of Schleswig-Holstein or the Schleswig-Holstein savings bank association.
However, at this uncertain stage, no concrete rating action is being initiated, Moody's added. One prerequisite for an eventual merger is the approval of the owners of both banks, as well as the consent of both State parliaments to an agreement between the government of Schleswig-Holstein and the Senate of the Federal State of Hamburg.
With regard to the potential spin-off of Investitionsbank Schleswig-Holstein from LB Kiel, the key administrator of the state's promotional and structural policy programmes, the debt and deposit ratings of LB Kiel would be unaffected, since the spin-off does not change the support structure for LB Kiel. The impact on the financial strength rating should be low due to the relatively small size of this banking unit, Moody's said. The rating agency will monitor the potential impact on LB Kiel's capitalisation carefully as a result of the spin-off as a considerable portion of LB Kiel's equity is appropriated to Investitionsbank.
The outlook for both banks' Aa1 debt and deposit ratings is stable, incorporating a recent agreement with the EU Competition Commission on the timeliness of payments for grandfathered Landesbanken obligations. The outlook for the banks' C+ financial strength remains negative, because of the possible negative effects of a long-standing complaint with the EU Competition Commission concerning an alleged capital benefit.
Headquartered in Kiel, Landesbank Schleswig-Holstein (LB Kiel) acts as a regional commercial bank, the central bank to the savings banks in Schleswig-Holstein and house bank to the State of Schleswig-Holstein. It had total assets of EUR82 billion as of 31 December 2000.
Based in Hamburg, Hamburgische Landesbank (HLB) is Germany's eighth largest Landesbank and acts as a regional commercial bank and house bank to the State of Hamburg. It had total assets of EUR81 billion as of 31 December 2000.
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