Ratings affirmation follows spin-off of Berlin Hyp from LBB, outlook on standalone assessments now stable
Frankfurt am Main, January 22, 2015 -- Moody's Investors Service has today affirmed the long-term
senior ratings of Landesbank Berlin AG (LBB) at A1 and of Berlin Hyp AG
(Berlin Hyp) at A2 following the re-organisation within the wider
Landesbank Berlin Holding group (LBBH, unrated). The outlook
on both banks' senior long-term ratings remains negative.
Concurrently, to reflect LBB's progress during the transition phase
of the reorganisation and its reduced vulnerability to tail risks,
Moody's affirmed LBB's D+ standalone bank financial strength
rating (BFSR), equivalent to a baseline credit assessment (BCA)
of ba1 and changed the outlook on the BFSR to stable from negative.
Further, Berlin Hyp's BFSR of D (BCA of ba2) was affirmed
with stable outlook.
LBB and Berlin Hyp are currently undergoing a strategic realignment and
repositioning of their business activities. As a result,
Berlin Hyp -- previously a fully owned subsidiary of LBB
-- was spun-off from its parent while both banks
remain under the ownership of LBBH as of 1 January 2015. LBB will
continue to be scaled back to comprise core retail and corporate banking
activities, thereby conducting most of its business activities under
the Berliner Sparkasse brand.
For a detailed list of the affected ratings, refer to the end of
the press release.
Backed ratings, supported by a deficiency guarantee provided by
Land of Berlin (Aa1, stable) are unaffected by today's rating
action.
RATINGS RATIONALE
- LONG-TERM RATINGS REFLECT INTEGRATION INTO GERMANY'S PUBLIC
BANKS SECTOR AND DECLINING SYSTEMIC SUPPORT CONSIDERATIONS
The affirmed long-term senior ratings of LBB at A1 and those of
Berlin Hyp at A2 are underpinned by (1) the banks' unchanged standalone
credit profiles; as well as (2) the rating agency's assumptions
of a very high probability of external support that would be forthcoming
in the event of need. Moody's bases its view on the fact
that both banks - as members of the sector of public banks -
benefit from multiple sources of support, primarily through the
direct ownership of the German Savings Banks Association (Sparkassen-Finanzgruppe
or S-Finanzgruppe: corporate family rating Aa2 negative;
BFSR C+/BCA a2). As a result, both banks receive a six-notch
uplift from their BCAs of ba1 and ba2, respectively.
The outlook on the banks' long-term senior ratings is negative
reflecting the adoption of the Bank Recovery and Resolution Directive
(BRRD) and the Single Resolution Mechanism (SRM) regulation in the EU
which has been transposed into legislation in Germany as of January 2015.
Although Moody's support assumptions are unchanged for now,
the probability has risen that they will be revised downwards to reflect
the new framework.
- LBB's STANDALONE FINANCIAL PROFILE BENEFITS FROM THE SPIN-OFF
OF ITS FORMER SUBSIDIARY BERLIN HYP, THEREBY REDUCING TAIL RISK
LBB's D+ BFSR was affirmed and the outlook was changed to stable
from negative to reflect the bank's progress during the transition phase
of the reorganisation and improved capital resilience following the spin-off
of Berlin Hyp.
The ba1 BCA is based on the bank's substantial -- but not
fully exploited -- retail and SME franchises, its
adequate funding and liquidity profile, as well as its moderate
financial fundamentals. The pressure on capitalisation levels under
an adverse scenario has declined substantially in Moody's view,
as the banking activities that remain post-reorganisation are less
sensitive to economic downturns. The spin-off of Berlin
Hyp reduces LBB's vulnerability to tail risks significantly,
as the exposure to higher-risk commercial real-estate business
has lessened. However, the BFSR is constrained by (1) the
challenges the bank faces during the current transition, which further
limit its modest capital generation capacity; and (2) the bank's
low and volatile profitability.
- BERLIN HYP'S STANDALONE FINANCIAL PROFILE UNAFFECTED BY
SPIN-OFF
The affirmation of Berlin Hyp's BFSR of D (BCA ba2) with stable
outlook derives from the bank's unchanged financial metrics such as capitalisation,
asset quality and funding, as well as its business profile as a
monoline commercial real-estate and public-sector financier
after its spin-off from LBB. The bank has a well-established
franchise in domestic and international commercial real-estate
and robust asset quality, which is supported by the gradual reduction
of the non-performing loan portfolio. However, Moody's
notes that the bank's high balance-sheet leverage is a constraining
factor for its BCA. At year-end 2013, Berlin Hyp's
balance-sheet leverage ratio was low at 2.5% and
the bank will have to strengthen its capital or de-lever to be
able to meet future regulatory thresholds. Berlin Hyp's standalone
credit profile is further constrained by high business-model induced
risk concentrations in its cyclical commercial real-estate lending
business, potentially causing larger credit losses under an adverse
economic scenario.
SUBDEBT OF BOTH ENTITIES BENEFIT FROM CROSS-SECTOR LIABILITY SCHEME
LBB's subordinated debt, affirmed at Baa3, now carries
a stable outlook, in line with the outlook of the BFSR. Berlin
Hyp's subordinated debt program rating was affirmed at (P) Ba1.
The subordinated debt rating is one notch below the banks' adjusted
BCAs of baa2 (LBB) and baa3 (Berlin Hyp).
The adjusted BCAs, positioned two notches above the bank's
standalone BCA's of ba1 (LBB) and ba2 (Berlin Hyp), serve
as the anchor rating for subordinated debt instruments and reflects Moody's
estimate of support that is likely to be made available as "going-concern
support". This principally applies to support from the cross-sector
joint liability scheme (Haftungsverbund), which Moody's believes
is available for the benefit of all classes of debt.
WHAT COULD MOVE THE RATING UP/DOWN
Upward pressure on both entities' long-term senior ratings
is unlikely, as indicated by the negative outlook. Those
ratings could come under downward pressure as a result of (1) a downgrade
of the BFSRs; (2) a deterioration in the commercial and financial
profile of S-Group or a change in ownership (albeit unlikely),
which could lead Moody's to revisit its very high support assumptions;
or (3) a re-assessment of Moody's systemic support assumptions.
Upward pressure on LBB's BFSR could develop if the bank demonstrates
a sustainable improvement in its financial metrics, including capitalisation
and profitability. A downgrade of LBB's standalone BFSR could be
prompted by (1) a halt or reversal in the recently improving trend in
its capitalisation; or (2) a period of extended earnings pressure
during the restructuring period. The aforementioned conditions
for a lowering of the BFSR include restructuring charges affecting the
bank's capitalisation.
Upward pressure on Berlin Hyp's standalone BCA could develop as a result
of (1) an improvement in the bank's leverage ratios, particularly
through increased leeway to retain earnings and/or (2) a reduction in
short-term interbank funding, resulting in a more balanced
liability maturity profile. Downward pressure on Berlin Hyp's
standalone BFSR could develop as a result of (1) a material erosion in
Berlin Hyp's asset quality; (2) a deterioration in its risk-adjusted
capitalisation; (3) a sustained weakening of its recurring earnings
power and operating efficiency; and/or (4) an increase in the bank's
risk appetite with regards to its commercial real-estate lending.
FULL LIST OF AFFECTED RATINGS
Landesbank Berlin AG
-- Bank Deposit Ratings -- Affirmed at A1, outlook negative,
P-1
- Issuer Ratings -- Affirmed at A1, outlook negative
- Senior Unsecured Ratings -- Affirmed at A1, outlook
negative
- Other Short-Term Ratings -- Affirmed at (P)P-1
- Subordinated Debt Ratings -- Affirmed at Baa3, outlook
changed to stable from negative
- BFSR -- Affirmed at D+ (mapping to a ba1 BCA),
outlook changed to stable from negative
Berliner Sparkasse (branch of LBB)
-- Bank Deposit Ratings -- Affirmed at A1, outlook negative,
P-1
- Issuer Ratings -- Affirmed at A1, outlook negative
Berlin Hyp AG
- Bank Deposit Ratings -- Affirmed at A2, outlook negative,
P-1
- Senior Unsecured Ratings -- Affirmed at A2, outlook
negative
- Subordinated MTN Ratings -- Affirmed at (P) Ba1;
- BFSR -- Affirmed at D (mapping to a ba2 BCA), outlook
stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global Banks published
in July 2014. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Andrea Wehmeier
Vice President - Senior Analyst
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's affirms ratings of LBB at A1 and Berlin Hyp at A2; outlook negative
