MOODY'S CONFIRMS RATINGS OF HYPOVEREINSBANK LUXEMBOURG: Aa3/P-1 FOR DEPOSITS, C+ FOR FINANCIAL STRENGTH; ALSO ASSIGNS "a2" TO BANK'S "SILENT PARTICIPATION" ("STILLE EINLAGE")
Moody's Investors Service confirmed HypoVereinsbank Luxembourg's ratings of Aa3 for long-term deposits, Prime-1 for short-term deposits, and C+ for financial strength. HypoVereinsbank Luxembourg (HVL) is the resulting entity of the merger of Vereinsbank International (Luxembourg) and Hypobank Luxembourg. According to Moody's, the ratings --which are the same to those assigned to Vereinsbank International (Luxembourg) in September 1998 -- are based on the bank's steady and solid fundamentals as well as on the public statement of support (Patronatserkl„rung) from its parent, Bayerische Hypo- und Vereinsbank AG (rated Aa2/Prime-1/B+).
Moody's also assigned an "a2" rating to a "stille Einlage" or "silent participation" (referred to as Capital Contribution Notes). Commenting on this rating, Moody's noted that, although a"stille Einlage" displays some debt-like characteristics, it is deeply subordinated to any debt instrument of the same bank and also can share in losses if distributable reserves disappear. In fact, added the rating agency, a "stille Einlage" has characteristics resembling other types of preferred shares. Referring to the regulatory treatment of these securities, Moody's said that after a period of uncertainty, "silent participations" are recognized as Tier 1 capital by bank regulators in both Germany and internationally. As a result of the clearer regulatory treatment, these instruments would be expected to supplement the bank's economic capital in the case of severe financial distress.
HypoVereinsbank Luxembourg is primarily involved in international corporate banking (including project and aircraft finance), treasury activities, and private banking. It provides services to its own customer base and to many of the parent company's international customers. The bank has very close links to the parent and offers products to many of the group's domestic corporate customers. It also provides support functions for other group subsidiaries, including asset management services. For these reasons, Moody's considers the Luxembourg bank's franchise to be inextricably linked to that of the parent.
Risks for the bank include the inherent uncertainties related to Luxembourg's competitive position as a financial center, as well as the future development of the parent bank's franchise in more competitive home and global markets. Net interest income is the most important contributor to earnings, added Moody's. Commission income and asset management fees are important elements of the bank's results.
At the date of the merger, November 1st, 1998, HypoVereinsbank Luxembourg SA ranked as the second-largest (after Deutsche Bank's Luxembourg subsidiary) among the Luxembourg subsidiaries of German banks in terms of total assets (approximately DM 43 billion; or US$ 26 billion).
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