Moody,s Investors Service downgraded to Aa3 from Aa2 and to B from B+, respectively, the long-term deposit and financial strength ratings of Bayerische Hypo- und Vereinsbank AG (HypoVereinsbank). The long-term deposit and debt ratings of all HypoVereinsbank subsidiaries were also lowered, including the mortgage Pfandbriefe of Westfaelische Hypothekenbank to Aa1 and Wuerttembergische Hypothekenbank also to Aa1. Moody's confirmed HypoVereinsbank's public-sector and mortgage Pfandbrief ratings at Aaa and the group's Prime-1 short-term rating. These rating actions conclude a review for possible downgrade initiated on October 27, 1999.MOODY'S LOWERS LONG-TERM DEPOSIT AND FINANCIAL STRENGTH RATINGS OF GERMANY'S BAYERISCHE HYPO- UND VEREINSBANK TO Aa3 AND B, RESPECTIVELY; ALSO LOWERS LONG-TERM DEPOSIT AND DEBT RATINGS OF GROUP SUBSIDIARIES
Moody's stated that the downgrade reflects the stresses to the bank's asset quality and profitability caused by a difficult integration process. While HypoVereinsbank should see an improving outlook for risk-adjusted profitability, notably also due to the completion of the post-merger integration process, such profitability levels are likely to remain modest by European and global standards. HypoVereinsbank is heavily relying on interest income, therefore diversifying its revenue base remains a key strategic goal. The group is keen to still strengthen its asset management capabilities as well as its domestic market share levels in Nordrhein-Westfalen and Hessen. Moody's said that it continues to view the group's return-on-equity targets as challenging.
In the context of the recent creation of a work-out portfolio relating to legacy real estate assets, Moody's said that it regards positively the additional high loan loss provisions taken by HypoVereinsbank in 1999. The current level of loan loss reserves appears acceptable. The bank has been also making progress in reducing meaningful concentration risk to Bavarian Mittelstand businesses (medium-sized companies). To the extent that HypoVereinsbank has largely completed the re-evaluation of its combined loan portfolio, the legacy of the former Hypo- and Wechselbank's less risk averse business appetite is now at least identified and largely neutralised. Moody's said that it expects a more conservative risk appetite to new lending across all HypoVereinsbank's core divisions, assisted by a more favorable German tax environment, which is expected from 2001 onwards. As such, HypoVereinsbank's rating outlook at the Aa3/P-1/B level is stable.
The rating agency added that, based on HypoVereinsbank's strong and stable franchise in Germany, primarily in the rich state of Bavaria, the bank appears well positioned to remain a meaningful player in Europe's fast-changing single-currency financial-services market. In this respect, Moody's noted HypoVereinsbank's proactive positioning for the internet age through its subsidiary Direkt Anlage Bank (unrated).
The following ratings were lowered:
Bayerische Hypo und Vereinsbank AG -- Long-term senior debt, issuer and deposits to Aa3 from Aa2; subordinated debt to A1 from Aa3; and bank financial strength to B from B+.
Bayerische Hypo und Vereinsbank, Paris Branch -- Long-term bank deposits to Aa3 from Aa2.
HVB Funding Trust (I, II, III, IV) -- Preferred stock to "a1" from "aa3".
HypoVereinsbank Overseas Finance -- Guaranteed long-term senior debt to Aa3 from Aa2; guaranteed subordinated debt to A1 from Aa3.
HypoVereinsbank Ireland -- Long-term deposits and issuer rating to A1 from Aa3.
HypoVereinsbank Luxembourg SA -- Long-term deposits and issuer rating to A1 from Aa3; subordinated debt to A2 from A1; silent participations to "a3" from "a2".
Westfaelische Hypothekenbank AG -- Long-term debt, issuer and deposit rating to A1 from Aa3; subordinated debt to A2 from A1; mortgage Pfandbriefe to Aa1 from Aaa.
Wuerttembergische Hypothekenbank AG -- Long-term debt and deposits to A1 from Aa3; subordinated debt to A2 from A1; mortgage Pfandbriefe to Aa1 from Aaa.
The following ratings were confirmed:
Bank Przemyslowo-Handlowy SA -- Long-term deposits at Baa1; short-term deposits at Prime-2; D+ bank financial strength.
Bayerische Hypo- und Vereinsbank AG -- Short-term debt and deposits at Prime-1; mortgage and public-sector Pfandbriefe both at Aaa.
HypoVereinsbank Overseas Finance -- Guaranteed short-term debt at Prime-1.
HypoVereinsbank Ireland -- Short-term deposits and commercial paper at Prime-1.
HypoVereinsbank Luxembourg SA -- Short-term deposits at Prime-1; C+ bank financial strength.
Westfaelische Hypothekenbank AG -- Public-sector Pfandbriefe at Aaa; short-term deposits at Prime-1; C bank financial strength.
Wuerttembergische Hypothekenbank AG -- Public-sector Pfandbriefe at Aaa; short-term debt and deposits at Prime-1; C bank financial strength.
Bayerische Hypo- und Vereinsbank AG, based in Munich is Germany's second largest banking group with total consolidated assets of Euro 495 billion as of September 30, 1999.
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