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Rating Action:

Moody's changes outlook to stable from positive on DZ BANK's C- BFSR

05 Mar 2008
Moody's changes outlook to stable from positive on DZ BANK's C- BFSR

DZ BANK's Aa3 debt and deposit ratings affirmed with a stable outlook

Frankfurt, March 05, 2008 -- Moody's Investors Service today changed the outlook on the C- bank financial strength rating ("BFSR") of DZ BANK AG Deutsche Zentral-Genossenschaftsbank ("DZ BANK") to stable from positive. DZ BANK's Aa3 long-term ratings were affirmed with their stable outlook. In addition, the subordinated and hybrid ratings as well as the Prime-1 short-term rating were affirmed.

The BFSR outlook change follows the announcement of DZ BANK's preliminary 2007 results and reflects DZ BANK's material exposure of EUR26 billion to Asset-Backed Securities ("ABS") and Moody's view of the potential resulting financial impact in the context of the bank's modest economic capitalisation and a profitability level that could also be burdened, in particular at the AG level.

Moody's notes positively that roughly 95% of DZ BANK's ABS portfolio is invested in bonds with a Aaa or Aa rating. However, when taking into account the sizeable exposure to US (and, to a lesser extent, UK) RMBS and CDOs and the internal stress tests that Moody's applies to these asset classes globally, the rating agency believes that DZ BANK might be required to make further write-downs during the course of 2008 should markets fail to improve. In comparison to DZ BANK's capitalisation on a group level, Moody's views these possible further valuation write-downs for DZ BANK's ABS portfolio as manageable and still in line with capital requirements (Tier 1 ratio above 6%) for banks with a BFSR in the C range. Signficantly, however, Moody's also notes that the parent bank's capitalization levels benefit from the fact that in accordance with German banking regulations the book value of participations does not need to be subtracted from the bank's equity, which otherwise would severely curtail the bank's regulatory capital and leave only a limited cushion for further loss absorption.

DZ BANK continues to benefit from a comfortable liquidity situation given the bank's current liquidity reserves and continued access to the cooperative banks' excess liquidity and capital market funding. In this context, DZ BANK has the financial flexibility to fund its ABS portfolio until maturity.

The C- BFSR continues to reflect the group's well-diversified and sustainable franchise value as well as its satisfactory financial flexibility, albeit impacted by current market developments. Further deterioration of DZ BANK's ABS portfolio and further write-downs of a similar degree to those announced last week could put downward pressure on the ratings and the stable outlook on the BFSR and long-term ratings. However, in view of the unchanged support assumptions (see below), any negative rating development on the bank's debt and deposit ratings resulting from potential significant further write-downs would -- if at all - most likely be limited to one notch. However, given the stable outlook on the BFSR at present, we do consider the likelihood of this to be low.

The affirmation of DZ BANK's Aa3 long-term ratings with their stable outlook reflects Moody's opinion that there remains (i) a very high probability of cross-sector support from FinanzVerbund BVR (Bundesverband der Deutschen Volksbanken und Raiffeisenbanken - the German co-operative banks association) and (ii) a very high probability of systemic support in the event of need.

RATING IMPACT ON DZ BANK IRELAND PLC

Moody's today also changed the outlook on the C- BFSR of DZ BANK Ireland plc ("DZ-I") to stable from positive. Hence, the BFSR's outlook has been aligned with that of its parent company, DZ BANK. All other ratings were affirmed with a stable outlook. The rating action reflects DZ-I's close integration in and dependence on its parent bank, resulting in a limited strategic and financial autonomy for the Irish subsidiary. DZ-I benefits from a public letter of comfort (Patronatserklaerung) from DZ BANK.

Headquartered in Frankfurt, DZ BANK Group is the fourth largest banking group in Germany (as of end-2006) and had total assets of around EUR430 billion as at 31 December 2007. At year-end 2007, DZ BANK group reported a pretax figure of EUR1.1 billion compared to EUR1.9 billion for 2006.

DZ-I is a wholly owned subsidiary of DZ BANK based in Dublin, Ireland. At the end of 2006, it reported total assets of EUR6.4 billion and equity of EUR242 million.

Frankfurt
Johannes Wassenberg
Managing Director
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt
Uwe Barth
Asst Vice President - Analyst
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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