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Rating Action:

Moody's assigns A1/P-1/D+ ratings to Raiffeisen Bank International (Austria)

Global Credit Research - 14 Oct 2010

RZB downgraded to A2, BFSR withdrawn, backed ratings at RBI level

Frankfurt am Main, October 14, 2010 -- Moody's Investors Service has today taken multiple rating actions on entities within the Raiffeisen Zentralbank Oesterreich Group (the RZB Group). These actions follow the successful conclusion of the transfer to Raiffeisen Bank International AG (RBI), formerly Raiffeisen International Bank-Holding AG, of the spun-off principal business activities and liabilities of Raiffeisen Zentralbank Oesterreich AG (RZB).

Moody's has today assigned to RBI a long-term debt and deposit rating of A1, a short-term debt rating of Prime-1, and a D+ bank financial strength rating (BFSR), mapping into a baseline credit assessment (BCA) of Baa3. This rating action affirms the provisional ratings for RBI assigned on 8 October, 2010. The outlook on the long-term debt and deposit ratings is stable, and the outlook on the BFSR is positive.

In addition, Moody's has downgraded RZB's long-term debt and deposit rating to A2 from A1, reflecting the status of RZB as a bank holding company and the structurally subordinated nature of its senior obligations relative to the direct obligations of its subsidiaries. The outlook on the rating is stable. The rating agency has withdrawn RZB's BFSR at D+ with a positive outlook. The Prime-1 short-term rating was affirmed.

Moody's has also assigned a backed A1 rating with a stable outlook to RZB's long-term senior unsecured debt, which benefits from an unconditional and irrevocable guarantee from RBI.

The ratings of the subordinated and hybrid instruments of RZB and RBI are discussed below.

Moody's will separately review any potential impact on the current ratings of the subsidiaries of RBI, which are not covered in this press release. RBI's Aaa rating for obligations that are guaranteed by the Republic of Austria remained unaffected by today's rating actions.

RATINGS RATIONALE

On 9 October 2010, RZB Group underwent a corporate reorganization whereby all of RZB's commercial banking activities and most of its liabilities were transferred to RBI, the stock-quoted holding company for the group's international activities in Central & Eastern Europe (CEE) and in the Commonwealth of Independent States (CIS). With the asset transfer, RZB has raised its previous 72.8% stake in RBI to 78.5%. RBI now operates as an Austrian-regulated banking institution. On a pro forma basis, its assets increased to EUR148 billion, up from EUR78 billion as of June 2010.

RZB will act as the bank holding company and assume supervisory and control functions over RBI, as well as the role of central bank for the RZB Group's owners -- namely, the co-operative sector or Raiffeisenlandesbanks in Austria. With a marginal earnings contribution from these activities, RZB's earnings will depend almost exclusively on income streams from RBI. Moody's expects the capital requirements of RBI's still-expanding franchise in CEE and CIS to weigh on any potential dividends to RZB.

RZB retains total assets of close to EUR30 billion, down from EUR93 billion according to YE 2009 individual accounts. While most of its liabilities were moved to RBI -- in particular, its market funds and customer deposits -- securities of EUR8 billion will stay with RZB until maturity in 2020, benefiting from a guarantee by RBI, as reflected in Moody's ratings.

PROVISIONAL RATINGS FOR RBI AFFIRMED

Following the transaction, RBI has effectively assumed all of RZB's previous businesses, except for the central bank function. This function makes a marginal contribution to earnings, but is relevant to the overall group due to the funding provided by the Raiffeisen sector of EUR16 billion according to unaudited and pro-forma June 2010 financials. Moody's understands that RZB will pass these resources on to RBI for a stable funding base.

RBI's BFSR of D+ recognises its strong retail and corporate franchises throughout Austria, CEE and CIS, which provides for good earnings diversification by geography as well as by business segment. However, performance depends heavily on the CEE franchise that the group has successfully established in the region.

According to unaudited pro forma financials as of June 2010, RBI's capitalisation is adequate for its risk profile, with a Tier 1 ratio of 9.5%. Moody's further notes that the group performed well during the economic crisis, and that credit losses recorded in 2009 and year-to-date were somewhat below the rating agency's base-case stress expectations. More importantly, performance was far better than had been indicated in Moody's stress-case scenario, which supports the BFSR at the current level.

Corporate governance, previously considered a constraint to the intrinsic strength of the rating, has clearly improved from the regrouping of RZB Group's major business activities into a stock-quoted company, thereby reducing the overall complexity of the group.

These strengths are counterbalanced by modest overall profitability after catering for risk costs and by challenges to asset quality. In particular, Moody's remains concerned that economic volatility and uncertainty will persist in some of RBI's core markets, such as Russia and Ukraine. Given the nature of RBI's sizeable exposure to the less granular corporate sector, the predictability of expected losses or write-down requirements remains an issue. However, the rating agency considers that further loan impairments can be absorbed at RBI's D+ BFSR level, hence the positive outlook on the BFSR.

RBI's A1 long-term debt and deposit ratings benefit from the support mechanisms available to members of the Raiffeisen cooperative banking sector (Kundengarantiegemeinschaft), which has been extended to RBI in the context of the transaction, but not to its CEE and CIS subsidiaries. The rating further reflects a high probability of systemic support, reflecting RBI's sizeable market share in Austria as well as the Raiffeisen sector's considerable importance to Austria's banking system. Together, these factors support a five-notch uplift to RBI's long-term debt and deposit ratings, as well as the stable outlook.

Moody's has also assigned the rating of A2 on RBI's senior subordinated debt, one notch below the senior debt and deposit rating. For banks in Austria, Moody's continues to incorporate systemic support in its ratings of dated subordinated debt to the same extent as in its senior debt ratings. This reflects the absence of a resolution framework in Austria that would allow for the imposition of losses on dated subordinated creditors outside of a liquidation scenario.

RZB DOWNGRADED TO A2 IN LINE WITH MOODY'S BANK HOLDCO NOTCHING RULES; BFSR WITHDRAWN

The downgrade to A2 from A1 of the long-term debt and deposit rating of RZB -- RBI's parent company --incorporates two main elements: (i) the long-term debt and deposit ratings of RBI of A1; and (ii) the structural subordination of the senior obligations of RZB regarding the senior unsecured obligations of its major operating entity RBI, resulting in a one-notch difference between RZB and RBI. However, Moody's notes the absence of any meaningful double leverage at the holding-company level and considers that RBI will be able to continue to generate adequate earnings that will allow for uninterrupted dividend payments, and therefore enable RZB to at least meet its payment obligations. The outlook on RZB's debt and deposit rating follows from the stable outlook on RBI's long-term rating.

Given that RZB has no meaningful sources of income except from RBI as its principal asset and in line with Moody's methodology, the rating agency has decided to withdraw the BFSR of RZB at a level of D+ with a positive outlook.

RZB'S BACKED RATINGS ALIGNED WITH RBI

RZB's A1 ratings on the backed debt securities of RZB are based on the unconditional and irrevocable nature of the guarantee and payment undertaking of RBI, which allows for the A1 ratings assigned to RBI to be passed through to the eligible securities.

The A2 ratings for RZB's backed subordinated debt after the transaction reflect the unconditional and irrevocable subordinated payment undertaking of RBI, which allows for the A2 ratings assigned to RBI to be passed through to RZB.

Ba1 HYRID RATING ASSIGNED TO RBI, AND PASSED THROUGH TO RZB'S BACKED JUNIOR SUBORDINATED DEBT

Moody's assigned a Ba1 rating on non-cumulative preferred securities issued by or transferred to RBI, three notches below the adjusted BCA, reflecting their deeply subordinated claims in a liquidation scenario and the non-cumulative coupon-skip mechanism tied to the breach of a balance-sheet loss trigger.

RZB Finance (Jersey) II Limited (XS0173287862)

RZB Finance (Jersey) III Limited (XS0193631040)

RZB Finance (Jersey) IV Limited (XS0253262025)

Moreover, the rating agency has today affirmed the Ba1 ratings for junior subordinated debt instruments (Ergaenzungskapital notes), which are henceforth based on the unconditional and irrevocable guarantee and payment undertaking of RBI. The latter allows for the Ba1 ratings assigned to RBI to be passed through to the eligible securities. Those securities are rated three notches below the adjusted BCA of RBI, reflecting the debt's junior subordinated claim in liquidation and cumulative deferral features that are tied to the breach of a net loss trigger.

Raiffeisen Zentralbank Oesterreich AG: Ergaenzungskapital notes (XS0326967832)

The adjusted BCA is Moody's starting point for rating hybrid securities and reflects the bank's standalone credit strength, including parental or cooperative support, if applicable. The adjusted BCA excludes systemic support expectations. RBI's adjusted BCA stands at Baa1.

WHAT COULD CHANGE THE RATINGS UP OR DOWN

Upward pressure on the D+ BFSR of RBI would result from a further improvement in RBI's credit metrics, in particular relating to asset quality, efficiency and capital. Specifically, upward pressure will arise to the extent that RBI is able to benefit from a further stabilization and recovery of macroeconomic conditions in the CEE and CIS, which should translate into improved asset quality and stronger earnings and capital levels. The bank's long-term debt and deposit ratings could principally benefit from material, sustainable improvements in the bank's intrinsic strength. However, some modest upward rating pressure, as mentioned above, is not likely to immediately trigger an upgrade of the long-term ratings in view of the very high support assumptions already factored into the bank's senior debt and deposit ratings.

Downward pressure on RBI's D+ BFSR could be triggered by (i) a backdrop in the recovery in CEE or CIS leading to substantial additional credit charges, beyond levels currently anticipated by Moody's; (ii) an extended period of weak earnings and hence reduced internal capital generation; and/or (iii) weakened capitalization and regulatory capital levels as a result of strong balance sheet growth on the back of continued expansion in Eastern Europe and/or following an earlier-than-anticipated repayment of government capital without replacing the same with similar capital amounts of high quality. The bank's long-term debt and deposit ratings could possibly suffer from a material, longer-term weakening in its intrinsic strength, as well as from (i) a deterioration in the commercial and financial profile of the Raiffeisen sector in Austria overall and the lower potential support this might imply for RBI, and (ii) adverse changes in the systemic support assumptions that are currently factored into RBI's ratings. However, Moody's does not consider this likely at present.

An upgrade of RZB's long-term ratings could result from an upgrade of RBI's long-term ratings. Alternatively, upward pressure on RZB's rating only could result from a higher degree of diversification of revenues and earnings, provided that the cash flows are (i) significant and recurrent and (ii) derived from businesses that are lowly correlated with those of the main operating bank RBI, and that (iii) this change does not result in in a doubling of leverage or otherwise increase the RZB's risk profile.

Equally, a downgrade of RZB's long-term ratings would likely be a consequence of a downgrade of RBI's long-term ratings. Developments which could lead to a wider notching between RZB's rating and RBI's rating would include: (i) the incidence of the holding company RZB's double leverage; (ii) a multi-notch downgrade or series of downgrades for the rating of RBI to the lower range of investment-grade ratings.

The principal methodologies used in rating Raiffeisen Zentralbank Oesterreich Group and Raiffeisen Bank International AG were Bank Financial Strength Ratings: Global Methodology published in February 2007, Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007, and Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt published in January 2010. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Moody's previous rating action on RZB and RBI was initiated on 8 October 2010, when RBI was assigned provisional ratings, RZB's ratings were affirmed and hybrids securities ratings were downgraded to Ba1 from Baa2.

RZB is domiciled in Vienna, Austria. At the end of June 2010, it had total consolidated assets of EUR152.2 billion and equity of EUR11 billion, according to IFRS. The group's core capital Tier 1 ratio was 9.3%, according to BIS standards.

RBI, which will be domiciled in Vienna, Austria, had total consolidated assets of EUR148 billion and equity of EUR10.1 billion, according to unaudited pro-forma IFRS figures as June 2010.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the Credit Rating Action. Please see the ratings disclosure page www.moodys.com/disclosures on our website for further information.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Frankfurt am Main
Mathias Kuelpmann
Senior Vice President
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt am Main
Carola Schuler
MD - Banking
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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Moody's assigns A1/P-1/D+ ratings to Raiffeisen Bank International (Austria)
No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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