Approximately $121.6 Billion of Debt Securities Affected.
London, 01 April 2003 -- Moody's Investors Service downgraded the deposit and debt ratings of HVB
Real Estate to Baa1/P-2 from A1/P-1, those of Westfaelische
Hypothekenbank (WestHyp) to Baa1/P-2 from A2/P-1,
and these two banks' financial strength ratings (FSRs) to D+ from
C+ and C, respectively. At the same time, Moody's
downgraded the deposit and debt ratings of Wuerttembergische Hypothekenbank
(WuerttHyp) to A3/P-2 from A2/P-1 and confirmed the bank's
FSR at C+. In addition, Moody's downgraded HVB Ireland's
short-term deposit and debt ratings to P-2, confirmed
the bank's A3 long-term deposit rating and upgraded its FSR to
C from C-. The outlook on all long- and short-term
debt and deposit ratings and FSRs is stable. These rating actions
conclude the review process initiated on 23 October 2002 following the
announcement of major restructuring plans on the part of Bayerische Hypo-
und Vereinsbank AG (HVB; A3/P-1/C-).
As regards Pfandbriefe, the ratings of HVB Real Estate's and WestHyp's
mortgage Pfandbriefe have been downgraded to A1 from Aa1 and Aa2,
respectively, and the ratings of the bank's public-sector
Pfandbriefe to Aa3 from Aaa and Aa1, respectively. The ratings
of WuerttHyp's mortgage Pfandbriefe have been downgraded to Aa3 from Aa2
and the ratings of the bank's public-sector Pfandbriefe to Aa2
from Aa1. Moody's outlook on these ratings is stable.
Moody's also affirmed the A3/P-1 debt and deposit ratings of HVB
as well as the A2/P-1 debt and deposit ratings of Bank Austria
Creditanstalt (BA-CA), all with stable outlook. The
outlook for HVB's C- FSR was changed to negative from stable.
These rating actions follow HVB's announcement of further details of (1)
the planned transfer of HVB's main activities in commercial real estate
financing to the new Hypo Real Estate Group - including the entire
European Real Estate Finance business of HVB, (2) the participation
in WürttHyp along with HVB Real Estate Bank and WestHyp -
and (3) the spin-off of this group from HVB Group in the autumn
of 2003. HVB Group shareholders will receive one additional share
of Hypo Real Estate Holding - the new management holding company
for the real estate group - for four HVB-shares and will
vote on the spin-off at the Annual General Meeting on May 14 this
year. Moody's rating actions are based on its expectation that
the transactions will go through.
The new ratings of HVB Real Estate and WestHyp reflect Moody's belief
that the combination of both banks - as a first step WestHyp will
become a subsidiary of Hypo Real Estate Bank (the new name for HVB Real
Estate), and as a second step the banks will be merged -
will remain structurally affected by HVB Real Estate's work-out
activities, especially the effort to reduce exposures to the difficult
German commercial real estate market. HVB Real Estate has made
progress in improving its risk management and provisioning levels.
However, reducing the potential impact of the legacy risks in the
loan portfolio on the bank's capital remains an uphill challenge and may
need the release of the announced EUR590 million risk sheltering provided
by HVB. This would in turn underpin a second major challenge for
Hypo Real Estate Bank - that of sufficiently improving its profitability
in the German market.
With regard to the rating action on WuerttHyp - the second future
subsidiary of Hypo Real Estate Holding - Moody's expects WuerttHyp
to remain one of the stronger German mortgage banks, with adequate
and stable financial fundamentals and a prudent risk appetite, as
reflected in the confirmation of the C+ financial strength rating.
However, Moody's believes that the new debt ratings reflect the
marginally higher risks that WuerttHyp's profitability could be hurt if
Hypo Real Estate Bank were to need additional support in excess of the
extra cushion provided by HVB. The new Hypo Real Estate Bank would
become the biggest bank in the new Hypo Real Estate Group with the largest
commercial real estate portfolio.
Moody's rating actions for HVB Ireland reflect the bank's new role at
the core of the future international commercial real estate business of
the Hypo Real Estate Group. According to plans, HVB Ireland
will be named Hypo Real Estate Bank International and would become the
third bank subsidiary of Hypo Real Estate Holding, incorporating
HVB's European commercial real estate business, including the branches
in the large European cities and the mortgage banks in Holland and Luxembourg.
While this process is still subject to approval by the Irish regulators,
the plans would lead to Hypo Real Estate International becoming a transaction-focused
commercial real estate lender, with experience in medium to big-ticket
transactions, especially in the UK, Holland and France.
Moody's noted that the international real estate units of HVB have shown
historically strong earnings, negligible loan losses and are becoming
increasingly diversified. However, as the growth in recent
years has also occurred in markets that have not yet been stress-tested,
Hypo Real Estate International's funding will remain supported on a limited
basis for some time by HVB. In addition, Moody's says that,
similar to WuerttHyp (although somewhat mitigated by the fact that Hypo
Real Estate International is an Irish bank), an unexpected strong
deterioration of Hypo Real Estate Bank's asset quality could have a negative
impact on Hypo Real Estate International's financial fundamentals.
Moody's says that the negative outlook of HVB's C- FSR reflects
uncertainties related to the financial impact of the planned separation
from its mortgage bank subsidiaries. On the one hand, Moody's
notes that HVB will benefit from reducing its exposures to the difficult
German commercial real estate market. On the other hand,
the radical restructuring plans will absorb management attention and will
strain HVB's financial resources, especially after having provided
for a substantial increase in the capitalisation and the ring-fencing
of the new real estate group. Moody's expects that HVB will be
successful with its announced placement of a minority holding of up to
a quarter in Bank Austria-Creditanstalt in the course of a free-float
capital increase before the end of the year, a precondition in order
to support the spin-off in view of HVB's modest capitalisation
level. Moody's adds, however, that HVB's ultimate success
in improving its own capitalisation remains less clear at this time,
especially as HVB depends on further assets sales.
The following ratings were downgraded:
- HVB Real Estate Bank AG: senior long-term debt and
deposit ratings from A1 to Baa1; mortgage Pfandbriefe rating from
Aa1 to A1 and public-sector Pfandbriefe rating from Aaa to Aa3;
long-term subordinated debt rating from A2 to Baa2; bank financial
strength rating from C+ to D+; and short-term deposit
rating from P-1 to P-2.
- Wuerttembergische Hypothekenbank AG: senior long-term
debt and long-term bank deposit ratings from A2 to A3; subordinated
debt rating from A3 to Baa1; mortgage Pfandbriefe from Aa2 to Aa3
and public-sector Pfandbriefe from Aa1 to Aa2; and short-term
deposit rating from P-1 to P-2.
- Westfaelische Hypothekenbank AG: senior unsecured and long-term
bank deposits from A2 to Baa1; subordinated debt from A3 to Baa2;
mortgage Pfandbriefe from Aa2 to A1 and public sector Pfandbriefe from
Aa1 to Aa3; short-term deposit rating from P-1 to P-2;
and bank financial strength rating from C to D+.
- Westhyp Finance BV: senior long-term debt rating
from A2 to Baa1; subordinated debt rating from A3 to Baa2; and
short-term rating from P-1 to P-2.
- HVB Ireland: short-term deposit and debt rating
from P-1 to P-2.
The following ratings were confirmed:
- Wuerttembergische Hypothekenbank AG: C+ financial
- HVB Ireland: A3 long-term deposit rating.
The following ratings were upgraded:
- HVB Ireland: Financial Strength Rating to C from C-.
The following ratings were not under review and have been affirmed:
- Bayerische Hypo- und Vereinsbank AG: A3/P-1
debt and deposit ratings.
- Bank Austria Creditanstalt AG: A2/P-1 debt and deposit
Headquartered in Munich, Bayerische Hypo- und Vereinsbank
is Germany's second largest banking group. As of 31 December 2002,
the group had consolidated total assets of EUR 691 billion.
Samuel S. Theodore
Financial Institutions Group
Moody's Investors Service Ltd.
44 20 7772 5454
MOODY'S DOWNGRADES HVB'S THREE MORTGAGE SUBSIDIARIES AND HVB IRELAND; CONFIRMS WUERTTHYP'S C+ FSR AND HVB IRELAND'S A3 LONG-TERM RATING; UPGRADES HVB IRELAND'S FSR TO C AND AFFIRMS HVB'S AND BA-CA'S RATINGS; OUTLOOK ON HVB'S C- FSR RATING IS CHANGED TO NE
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
44 20 7772 5454