MOODY'S DOWNGRADES TO Aa2 BANK AUSTRIA'S LONG-TERM DEPOSIT RATING, CONFIRMS THE Aaa RATING OF THE CITY OF VIENNA, AND UPGRADES TO Aa3 AND C+ CREDITANSTALT'S LONG-TERM DEPOSIT RATING AND FINANCIAL STRENGTH RATING, RESPECTIVELY.
London, 07-14-97 -- Moody's Investors Service downgraded Bank Austria AG's long-term deposit and senior debt ratings to Aa2 from Aaa, its subordinated debt to Aa3 from Aa1, and confirmed the bank's short-term deposit and debt ratings at Prime-1 as well as the bank financial strength rating at C+. Moody's also confirmed the Aaa debt rating of the City of Vienna. At the same time, the rating agency raised the long-term deposit and senior debt ratings of Creditanstalt-Bankverein AG to Aa3 from A1, the bank's subordinated debt rating to A1 from A2, and its bank financial strength rating to C+ from C. All these rating actions concluded a review initiated on December 12, 1996, at the time when Bank Austria announced its takeover bid for Creditanstalt.
Moody's said that Bank Austria's current long-term ratings reflect its assessment of the new mix of both explicit and implicit support from the City of Vienna. The explicit support, in the form of a deficiency guarantee (Ausfallbuergschaft), appears to be unaffected by Bank Austria's successful acquisition of Creditanstalt. Furthermore, this explicit form of support is not likely to be removed in the foreseeable future. However, Moody's noted that the City's recent public announcements regarding the longer-term outlook for its relationships with AVZ (the holding company foundation for Bank Austria) and with Bank Austria itself create more uncertainty regarding Vienna's implicit support for the bank.
The confirmation of Bank Austria's C+ bank financial strength rating reflects, on the one hand, the fact that its franchise value should be strengthened both domestically and internationally and should allow some room for greater efficiency in the resulting consolidated group's treasury operations, Central and East European activities, and investment banking. On the other hand, added Moody's, Creditanstalt's sale conditions demanded by the Austrian coalition government, in particular the requirement that Creditanstalt must remain a separate legal operating entity for five years and that no targeted staff reductions may be undertaken by Bank Austria, suggest that any far reaching integration opportunities are less likely for the medium term. While the acquisition of Creditanstalt could lead to a better earnings mix for the group, Bank Austria continues to display more modest risk-adjusted profitability when compared to many of its international peers.
In confirming Vienna's debt rating, Moody's said that the contingent liabilities of the City, as deficiency guarantor for the Bank Austria group, are not at a level that might materially impair its long-term financial stability. Furthermore, Vienna's more recent performance – including that of 1996 – is positive, with lower budget deficits and more contained debt levels.
According to Moody's, Creditanstalt's ratings upgrade reflects not only its acquisition by Bank Austria -- this link will be further reinforced through the share exchange concerning Creditanstalt's remaining minority shareholders scheduled for September/October 1997 -- but also the evident strengthening of Creditanstalt's earnings base.
The following ratings were lowered:
Bank Austria -- long-term deposit and senior debt ratings to Aa2 from Aaa; subordinated debt rating to Aa3 from Aa1.
The following ratings were confirmed:
Bank Austria -- the short-term deposit ratings at Prime-1; the C+ bank financial strength rating.
Bank Austria Finance, Inc. -- the short-term debt rating at Prime-1.
City of Vienna -- the Aaa long-term debt rating.
Creditanstalt-Bankverein -- the short-term deposit and debt ratings at Prime-1.
Creditanstalt Finance, Inc. -- the short-term debt rating at Prime-1.
The following ratings were raised:
Creditanstalt-Bankverein -- long-term deposit and senior debt ratings to Aa3 from A1; subordinated debt rating to A1 from A2; bank financial strength rating to C+ from C.
Both Bank Austria and Creditanstalt-Bankverein are headquartered in Vienna, Austria. As of December 31, 1996, Bank Austria's consolidated assets reached ATS 758 billion (approximately US$ 70 billion) and Creditanstalt's consolidated assets reached ATS 688 billion (approximately US$ 63 billion).
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