MOODY'S LOWERS TO Aa2/ C+ THE LONG-TERM DEPOSIT AND FINANCIAL STRENGTH RATINGS OF LANDESBANK BERLIN AND TO A1/D+ THE LONG-TERM DEPOSIT AND FINANCIAL STRENGTH RATINGS OF BANKGESELLSCHAFT BERLIN; ALSO LOWERS TO Aa2 THE GUARANTEED DEBT OF BGB FINANCE (IRELA
Moody's Investors Service lowered to Aa2 from Aa1 the long-term deposit and debt ratings of Landesbank Berlin Girozentrale (LB Berlin), to A1 from Aa3 the long-term deposit rating of Bankgesellschaft Berlin AG (BgB), and to Aa2 from Aa1 the guaranteed debt rating of BGB Finance (Ireland) plc. The latter's rated debt is jointly and severally guaranteed by LB Berlin, BgB and Berliner Bank AG (unrated by Moody's). Moody's added that it has also lowered to C+ from B the bank financial strength rating of LB Berlin and to D+ from C the financial strength rating of BgB. Both LB Berlin's and BgB's short-term deposit ratings of Prime-1 are confirmed. These rating actions conclude two concurrent rating reviews for possible downgrade initiated in 1996 and 1998.
LB Berlin's liabilities are supported by two support mechanisms, known as Anstaltslast (a maintenance obligation) and Gewaehrtraegerhaftung (an owner's statutory or guarantee obligation), that are provided by the State of Berlin. These are tantamount to a guarantee. Moody's ongoing concern about the financial health of the State of Berlin led to the Aa2 rating adjustment of LB Berlin, most notably evidenced by the former's budget strains, a strong need for debt financing and asset sales. However, Moody's noted that the Berlin government has taken positive steps to make structural adjustments to improve the financial situation. For the short-term, a policy of asset sales provides the necessary support for the budgets. Going forward, the direction of LB Berlin's explicitly-supported rating will be dependent on the successful implementation by the Berlin government of the necessary structural changes and the achievement of a more sustainable fiscal position.
Moody's stated that the downgrade of BgB's long-term deposit rating to A1 from Aa3 reflects the relatively weaker intrinsic financial strength of the group. The rating, however, continues to incorporate implicit support from the State of Berlin. BgB, however, as a privately incorporated company, can neither benefit from Anstaltslast nor from Gewaehrtraegerhaftung.
According to Moody's, LB Berlin's bank financial strength rating downgrade to C+ from B reflects increased concern about LB Berlin's real estate exposure. To the extent that this relates specifically to the Berlin region, Moody's said that it continues to see short- to medium-term uncertainties related to this market. In recent years, LB Berlin's loan loss experience and loan loss provisioning needs have risen to broadly come in line with the average for German Landesbanken, as well as the larger savings banks rated by Moody's. LB Berlin's core capital level remains strong by Landesbank standards, although Moody's also noted the significant profit upstreaming to BgB in 1996 that would not have been possible from recurring earnings alone. Even so, the rating agency said that it continues to regard LB Berlin as a financially sound bank with a stable retail franchise in the Berlin area.
Moody's stated that the downgrade of BgB's financial strength rating to D+ in part reflected accumulated asset quality problems in recent years -- most notably at Berliner Bank AG -- coupled with heavy asset concentration in the Berlin region. As a consequence, the group's risk adjusted profitability in relation to its risk profile remains more modest. Exposure to Russia is limited, however, and was not a critical factor for the rating adjustment. Furthermore, BgB group's core capital has declined sharply in recent years in line with rapid balance sheet growth. Whilst the group preserves a large and defensible franchise in Berlin, outside this region its market presence is more fragile. Over the last 18 months, BgB has addressed the need for better management and systems integration. However, the forthcoming consolidation with Norddeutsche Landesbank GZ (Nord/LB) (rated Aa1/P-1/C) remains on course and will, in Moody's view, challenge the new group further. Subject to formal approval by the various public-law owners, the consolidation would occur with effect of January 1, 1999. Moody's noted that cost savings are unlikely to be evident over the short-term following this merger.
The following ratings are lowered:
Bankgesellschaft Berlin AG -- the rating for long-term bank deposits to A1 from Aa3; the bank financial strength rating to D+ from C.
Landesbank Berlin GZ -- the rating of the bank for long-term deposits to Aa2 from Aa1; the rating for long-term debt to Aa2 from Aa1; and the bank financial strength rating to C+ from B.
Landesbank Berlin GZ, London Branch -- the long-term debt rating to Aa2 from Aa1.
BGB Finance (Ireland) plc -- the rating for guaranteed long-term debt to Aa2 from Aa1.
The following ratings are confirmed:
Landesbank Berlin GZ -- the rating of the bank for short-term deposits at Prime-1.
Bankgesellschaft Berlin AG -- the rating of the bank for short-term deposits at Prime-1.
Bankgesellschaft Berlin AG, based in Berlin is currently Germany's eighth largest banking group with consolidated assets as of December 31, 1997 of DM 355 billion (US$ 198 billion). Landesbank Berlin GZ is a public-law regional central bank and public-law savings bank, ranking as Germany's sixth largest Landesbank. Also headquartered in Berlin, the bank had total assets of DM 177 billion (US$ 99 billion) as of December 31, 1997.
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