Moody's Investors Service confirmed at Aa2 and B+, respectively, the long-term deposit and financial strength ratings of Bayerische Hypo- und Vereinsbank AG and changed the rating outlook to negative. The action follows the announcement that the bank will take a DM 3.5 billion special charge. This charge will be taken to build provisions for some real estate joint-venture and developer exposures that were differently valued at the former Hypo Bank than they were at Vereinsbank. Moody's noted that the charge will not affect earnings for the year, but it will be offset against hidden reserves, thereby reducing the bank's economic capital. The Prime-1 ratings for short-term debt and deposits within the group were confirmed.MOODY'S CONFIRMS RATINGS OF BAYERISCHE HYPO- UND VEREINSBANK (SENIOR AT Aa2), BUT CHANGES RATING OUTLOOK TO NEGATIVE
Moody's said that the existing ratings reflect several factors: the bank's historically consistent earnings; leading market positions in mortgage lending within Europe; and strong positions in retail and certain corporate banking activities in the bank's home market. Cost synergies from the merger should amount to about DM 1 billion and will be recognized in three to four years, thus boosting earnings potential over the medium term.
At the same time, the negative outlook incorporates Moody's concerns about margin pressure which could dampen profitability, high exposures to commercial real estate relative to equity, and the group's more modest economic capital, which will be further reduced by the above mentioned provision. The bank's management has stated that the charge should be sufficient to cover the recently uncovered real estate-related risks. Moody's appreciates that this conservative approach reflects the intention to resolve potential problems early in the merger process. Nevertheless, we believe that the risk appetite of the former Hypo was substantially higher than that of Vereinsbank, and that additional post-merger challenges cannot be completely ruled out.
The following ratings are confirmed:
Bayerische Hypo- und Vereinsbank AG -- Senior long term debt, issuer and deposit ratings at Aa2, long term subordinated debt Aa3, subordinated Tier 3 debt instruments A1, Mortgage Pfandbriefe Aaa, Public Sector Pfandbriefe Aaa, bank financial strength rating B+, short term bank deposit rating and commercial paper rating at P-1;
Bayerische Hypo- und Vereinsbank AG, Paris Branch --Senior long term debt rating atAa2, short term bank deposit rating at P-1;
Bayerische Hypo- und Vereinsbank AG, New York Branch -- Senior long term debt and deposits at Aa2, Public sector Pfandbriefe at Aaa;
Bayerische Vereinsbank Overseas Finance N.V. -- Senior long term debt rating Aa2, long term subordinated debt Aa3, short term debt rating P-1;
Bayernhypo Finance N.V. --Senior unsecured long term debt rating Aa2, long term subordinated Aa3, short term bank deposit rating P-1;
Hypobank Ireland --Issuer rating Aa3, senior long term debt rating Aa3, commercial paper rating P-1;
Vereinsbank Finance (Delaware) Inc. --Commercial paper rating P-1;
Vereinsbank International S.A. --Issuer rating and long-term debt and deposit ratings at Aa3, bank financial strength rating at C+, Prime-1 for short-term deposits.
Bayerische Hypo-und Vereinsbank, headquartered in Munich, is Germany's second-largest bank with total assets at September 30, 1998 of DM 858 billion (approximately US$ 525 billion).
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