New York, 01-28-98 -- Moody's Investors Service downgraded to Aa2 and to B+, respectively, the long-term deposit and financial strength ratings of Bayerische Vereinsbank AG. At the same time, the long-term deposit and financial strength ratings of Bayerische Hypotheken- und Wechsel-Bank were confirmed at Aa2 and B+, respectively. Confirmed were also both banks' Prime-1 short-term deposit ratings, as well as their Aaa public-sector and mortgage Pfandbrief ratings. According to Moody's, these rating actions conclude a review initiated on July 21, 1997 following the announcement that the two large Bavarian banks would merge to form Bayerische Hypo- und Vereinsbank (BHV). Although the merger will not be legally concluded until the fourth quarter of 1998, Moody's expects that the process will go through as planned, adding that its rating conclusion reflects the agency's view of the two banks combined. MOODY'S LOWERS LONG-TERM DEPOSIT AND FINANCIAL STRENGTH RATINGS OF BAYERISCHE VEREINSBANK TO Aa2 AND B+, RESPECTIVELY; ALSO CONFIRMS Aa2/P-1/B+ RATINGS OF BAYERISCHE HYPOTHEKEN- UND WECHSEL-BANK
BHV will be Germany's second-largest banking group, with pro forma total assets at year- end 1996 of DM 743 billion (US$ 412 billion). It will also be Europe's largest mortgage lender. The group will have a leading market share in Bavaria, and it will have significant market shares nationwide, especially in mortgage products and international trade finance products, but also, to a lesser extent, in retail and corporate banking.
Moody's said that the two banks have made good progress in outlining a focused strategy and a decisive management structure. Although the risk appetite of the two institutions was somewhat divergent in the past – an element reflected by their credit ratings -- policies and guidelines have been set that should be effective in standardizing business practices. At the same time, there will be substantial challenges ahead in managing the existing credit portfolio and in implementing the new guidelines consistently throughout the network.
In time, cost savings from synergies could be material, added Moody's, pointing to the currently high degree of overlaps related to the two banks' regional operations, but also cautioning on the offset of such potential cost savings by high post-merger expenses.
Core capital of the combined group -- boosted through a share offering in 1997 -- should remain more modest, although hidden reserves strengthen economic capital to some extent. Net interest margins remain low – largely because of the large portion of low-yield mortgage and public-sector loans in the portfolio-- but these margins have remained more stable than those of business loans (which have been dropping). Moody's noted that, like other German banks, BHV will continue to be faced with (a) narrowing margins in its corporate loan business, (b) increasing competition within Europe, and (c) the challenges of a dynamically evolving financial services market. However, the rating agency said that it believes that BHV is likely to remain a strong competitor in Germany in its core businesses, especially when the post-merger integration challenges will be successfully overcome.
The following ratings were lowered:
Bayerische Vereinsbank AG --senior long-term debt, counterparty and deposit ratings lowered to Aa2 from Aa1; subordinated debt to Aa3 from Aa2; and bank financial strength rating to B+ from A.
Bayerische Vereinsbank Overseas Finance N. V. -- Guaranteed senior long-term debt lowered to Aa2 from Aa1.
Bayerische Vereinsbank Paris Branch -- Long-term bank deposit rating lowered to Aa2 from Aa1; rating of the bank for short-term deposits at Prime-1 was confirmed.
The following ratings were confirmed:
Bayerische Vereinsbank AG -- The ratings of the bank for short-term obligations at Prime-1 and the Aaa ratings for both mortgage and public sector Pfandbriefe.
Bayerische Hypotheken- und Wechsel-Bank A.G -- Senior long-term debt, counterparty and deposit ratings at Aa2; subordinated debt at Aa3; bank financial strength rating at B+; ratings for mortgage and public sector Pfandbriefe at Aaa.
BayernHypo Finance NV -- Guaranteed long-term senior debt at Aa2.
Hypo Finance (Ireland) -- Long-term deposit and counterparty ratings at Aa3.
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