New York, 04-25-96 -- Moody's Investors Service downgraded the long-term ratings of Bayerische Vereinsbank AG (BV) and its guaranteed subsidiaries (senior to Aa1), thus concluding a review initiated on December 6, 1995. Moody's said that the rating change reflects the view that structural changes taking place in the German banking environment -- including retail and wholesale disintermediation and tighter competition in an overbanked and static market -- will impact BV's earning power over the medium term. While the bank has been innovative in creating and distributing new products, Moody's said that secular developments in the German banking market will challenge traditional commercial banking institutions such as BV. In this context, the bank's efforts to diversify internationally its franchise and revenue base adds some marginal uncertainty regarding its growth strategy. MOODY'S LOWERS LONG-TERM RATINGS OF BAYERISCHE VEREINSBANK AND ITS GUARANTEED SUBSIDIARIES (SENIOR TO Aa1)
Moody's said that BV's thin net interest margins-- the result of a high proportion of lower-risk loans, primarily mortgages -- are likely to be hurt further, owing to (1) potential for lower volume of new mortgage loans in post-unification market, (2) increased competition in the middle-market sector -- which is one of BV's traditional customer segments, and (3) the possibility of higher funding costs owing to the negative effect of gradual savings disintermediation on BV's retail-deposit base.
Moody's noted, however, that BV preserves a strong and stable domestic retail franchise, especially in its home region of Bavaria, citing also the bank's position as a market leader in mortgage and public-sector lending nationwide. BV has an established core funding base, a relatively stable income mix, and management has made efforts to control costs while improving technology. The bank's record results in 1995 reflected slower cost growth and the good performance of mortgage lending, although the largest contributing elements to the higher results were trading profits and lower provisioning. The rating agency highlighted BV's consistently strong asset quality -- in spite of a relatively high proportion of commercial real estate mortgages as a proportion to its equity -- noting that this is the result of conservative underwriting standards and effective controls.
The following ratings were downgraded:
Bayerische Vereinsbank AG --senior unsecured debt to Aa1 from Aaa; the bank's rating for long-term deposits to Aa1 from Aaa; subordinated debt to Aa2 from Aa1.
Bayerische Vereinsbank AG, Paris Branch -- the long-term rating for deposits to Aa1 from Aaa; the branch's Prime-1 rating for short-term deposits was confirmed.
Bayerische Vereinsbank Overseas Finance NV -- the guaranteed senior debt rating to Aa1 from Aaa.
The following ratings were confirmed:
Bayerische Vereinsbank -- the bank's short-term deposit and commercial paper ratings at Prime-1 and the A financial strength rating; the Aaa ratings for mortgage-secured bonds (Hypotheken Pfandbriefe) and public sector- secured bonds (Oeffentliche Pfandbriefe).
Vereinsbank Finance (Delaware) Inc. -- the Prime-1 rating for commercial paper (guaranteed by Bayerische Vereinsbank).
Bayerische Vereinsbank AG, Paris Branch -- the Prime-1 rating for short-term deposits.
Bayerische Vereinsbank is the fourth largest private-sector bank in Germany and is active in mortgage and universal banking. Headquartered in Munich, the group had consolidated assets, as of December 31, 1995, of DM 356 billion (US$ 255 billion).
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