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Rating Action:

Moody's concludes reviews on 9 German public-sector banks' ratings; takes action on another 6 banks' ratings

19 Jun 2015

Actions follow conclusion of methodology-related reviews and revision of government support considerations

NOTE: On December 30, 2015, the press release was corrected as follows: In the sixth paragraph of the REGULATORY DISCLOSURES section, changed the unsolicited credit ratings disclosure to: “The ratings of rated entity Bremer Landesbank Kreditanstalt Oldenburg GZ were not initiated or not maintained at the request of the rated entity”. Revised release follows.

Frankfurt am Main, June 19, 2015 -- Moody's Investors Service has today concluded its rating reviews on nine Landesbanks and Savings banks and/or related group entities, which are part of Germany's (Aaa stable) sector of public banks, Sparkassen-Finanzgruppe (S-Finanzgruppe; corporate family rating Aa2 stable). The rating agency initiated the reviews on 17 March 2015 (see press release at https://www.moodys.com/research/Moodys-reviews-global-bank-ratings--PR_321005) following the publication of Moody's new bank rating methodology and revisions to Moody's government support assumptions for these banks.

The rating agency has further taken actions on the ratings of another six banking groups that were either affirmed or unaffected previously following the publication of the new banking methodology.

In light of the new bank rating methodology, today's actions reflect the following considerations (1) the Macro Profiles applicable to each group or bank, based on the geographic breakdown of their asset bases; (2) the group's financial profiles and related qualitative factors; (3) the probability and strength of affiliate support from the cross-sector mechanism of the savings banks' sector; (4) protection offered to creditors more senior in the creditor hierarchy, as captured by Moody's Advanced Loss Given Failure (LGF) liability analysis; and (5) the reduced likelihood of support from the German government, in case of need.

Among the actions taken today by Moody's on the total 15 affected banking groups and their related entities as well as sector associations are the following:

- Four long-term deposit ratings were upgraded, and one downgraded

- 10 short-term deposit ratings were affirmed and three confirmed

- Four long-term bank issuer/senior unsecured debt ratings were upgraded, four were affirmed, five were confirmed and one downgraded

- 12 baseline credit assessments (BCAs) were affirmed and 2 were upgraded

- 10 adjusted BCAs were affirmed and four were upgraded

Moody's has also assigned Counterparty Risk (CR) Assessments to a number of the banks' subsidiaries and bank branches, in line with its new bank rating methodology.

Bank level subordinated debt and hybrid securities ratings, including backed subordinated ratings or grandfathered debt for Landesbanks (including Portigon AG), have either been affirmed or upgraded as part of this rating action. Moody's also affirmed the Aaa subordinated debt ratings of Landwirtschaftliche Rentenbank that benefit from a guarantee from the German government. Subsequently, Moody's has withdrawn the outlooks for all subordinated and hybrid instrument ratings for its own business reasons. For more information, please refer to Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available at moodys.com.

Outlooks, which provide an opinion on the likely rating direction over the medium term, are now assigned only to long-term deposit and issuer/senior unsecured debt ratings. Where outlooks are either positive (for most deposit ratings) or negative (for most debt ratings), outlooks primarily reflect prospective changes to insolvency legislation affecting the seniority of depositors and senior unsecured debt investors in Germany. The legislation, if implemented, could subordinate senior debt to deposits to the benefit of depositors and to the detriment of senior unsecured creditors.

Please click on the following link to access a full list of affected credit ratings. This list is an integral part of this press release and identifies each affected issuer: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_182453

Moody's has also published a Special Comment entitled "Key Analytic Considerations in Our Rating Actions on German Banks", providing more background on today's rating action. Subscribers can access the report under the following link: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1005805.

Please refer to this link for the new methodology: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_179038

RATINGS RATIONALE

The new methodology includes a number of elements that Moody's has developed to help accurately predict bank failures and determine how each creditor class is likely to be treated when a bank fails and enters resolution. These new elements capture insights gained from the crisis and the fundamental shift in the banking industry and its regulation.

(1) THE "STRONG" TO "VERY STRONG -" BANK-SPECIFIC MACRO PROFILES

The Macro Profile constitutes an assessment of the macroeconomic environment in which a bank operates. Given the geographic scope of their operations, the Landesbanks in particular have a more international footprint, with many of them having a substantial portion of their exposures in markets other than their home country. Even though the country-specific Macro Profile for Germany is "Very Strong -", the bank-specific Macro Profile scores are in selected cases one to two categories lower (eight Very Strong -, five Strong +, and one Strong), given that the macroeconomic conditions in the banks' home country are stronger than those of the other countries in which they operate.

German banks benefit from operating in an environment with very high economic, institutional and government financial strength and very low susceptibility to event risk. Low and declining private sector debt and a stable house price cycle support credit conditions. Funding conditions benefit from a strong domestic deposit base and good wholesale market access. However, operating conditions for the German banking system are constrained by high fragmentation in an over-saturated market, low fee income generation and intensifying competition for domestic business.

(2) BCAs REFLECT THE INDIVIDUAL BANKS' STRENGTH AND WEAKNESSES WITH DIVERGENCES IN THE SECTOR

Following its review, Moody's says that the individual entity's capitalisation, risk profile, profitability and funding situation determine the wide range of BCAs: there are three entities in the 'b' category, six in the 'ba', four in the 'baa' and one in the 'a' category. Amongst the key distinguishing factors are sector concentrations to higher-risk assets like shipping, commercial real estate (CRE) or cyclical industries, combined with high leverage. Overall improving capitalisation levels are frequently accompanied by modest profitability, with the low-yield environment exacerbating competitive pressure. However, the Landesbanks' access to S-Finanzgruppe's ample sector funds largely offsets their capital market funding dependence.

3) HIGH TO VERY HIGH SECTOR SUPPORT REDUCES RISKS FOR ALL CLASSES OF DEBT

The savings banks and Landesbanks benefit from cross-sector support from S-Finanzgruppe. Cross-sector support materially reduces the probability of default, as it would be available to stabilise a distressed member bank, and not just compensate for losses in resolution.

Moody's continues to consider the readiness of the sector to support its members to be "high", to "very high". Affiliate support provides two to four notches of uplift, as reflected in the individual banks' or banking group's adjusted BCAs.

The ownership structures of the individual banks or banking groups determine the assigned level of support -- either "high" or "very high" -- with full S-Group ownership or affiliation combined with the membership in the cross-liability scheme constituting "very high" support. The "high" support, assigned to most Landesbanks, reflects cross-liability scheme membership and only partial ownership by S-Group members. Typically, federal state governments and/or city states are co-owners. This increases the complexity in a scenario where support might be needed especially in the context of the new legal framework, which limits the use of tax payer's money for bank support without taking resolution measures on the investor side.

4) PROTECTION OFFERED TO DEPOSITORS AND SENIOR CREDITORS AS CAPTURED BY MOODY'S ADVANCED LGF LIABILITY ANALYSIS.

German banks are subject to the EU's Bank Resolution and Recovery Directive (BRRD), which Moody's considers to be an Operational Resolution Regime. Accordingly, Moody's applies its Advanced LGF analysis to German banks' liability structures, thereby mostly applying its standard assumptions. These assumptions include a residual tangible common equity of 3%, losses post-failure of 8% of tangible banking assets, a 25% run-off in junior wholesale deposits, a 5% run-off in preferred deposits, and a 25% probability of deposits being preferred to senior unsecured debt.

The Advanced LGF analysis results generally in a "very low" loss-given-failure for long-term junior deposits as well as senior unsecured debt ratings, reflecting the banks' substantial volume of deposit funding as well as the amount of senior unsecured debt and securities more subordinated to it.

The entities' long-term deposit ratings benefit from two notches of uplift in the LGF analysis (except HSH Nordbank which benefits from three notches of uplift and Kreissparkasse Koeln, which does not benefit from any uplift in the LGF analysis). Senior unsecured debt/issuer ratings benefit from the high level of protection they receive from the significant volume of senior unsecured debt, and the resulting "very low" loss given failure - generally resulting in two notches of uplift.

For more information on Moody's LGF analysis and a discussion of the differences in creditor hierarchies Moody's "How Resolution Frameworks Drive Our Creditor Hierarchies" at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1003760?docid=PBC_1003760 (in addition to the methodology itself) and "Germany considers changes to insolvency hierarchy of bank creditors" at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1004088

(5) REDUCED LIKELIHOOD OF GOVERNMENT SUPPORT

Following the introduction of the BRRD, Moody's has also lowered its expectations about the degree of support that the government might provide to a bank in Germany in the event of need. However, low or very low expected loss assumptions under the new LGF framework and/or higher adjusted BCAs either fully or even more than offset the impact on ratings.

With the implementation of bank resolution legislation, Moody's has either eliminated or lowered its assumption about the probability of government support for the banks in the EU. That said, given its size on a consolidated basis, Moody's considers the S-Finanzgruppe as systemically relevant. The agency therefore attributes a "moderate" probability of German government support for all members of the sector, in line with support assumptions for other systemically relevant banking groups in Europe. The agency therefore still includes one notch of government support uplift in the senior debt and deposits ratings of those Landesbanks and savings banks that are incorporated in Germany.

RATIONALE FOR THE OUTLOOK ON DEBT AND DEPOSIT RATINGS

The different outlooks on deposits and debt primarily reflect the potential for legislation in Germany that could subordinate senior debt to deposits to the benefit of depositors and to the detriment of senior unsecured creditors.

The corresponding draft law, which proposes to modify the insolvency order laid out in the German Banking Act (KWG) is subject to the ongoing parliamentary process in Germany. If enacted, depositors would - in insolvency as well as in bail-in - benefit from the subordination of senior unsecured debt instruments, reducing further the loss-given-failure expectations for deposits.

In contrast, the subordination of senior unsecured debt instruments would increase the loss-given-failure expectations for senior debt instruments, offering lower protection for senior bondholders.

--- BANK SPECIFIC ANALYTIC FACTORS

--BAYERISCHE LANDESBANK (BayernLB)

The affirmation of BayernLB's A3 long-term deposit and senior unsecured debt and issuer ratings incorporates (1) the affirmation of the bank's ba2 BCA; (2) the affirmation at baa3 of the adjusted BCA which incorporates high affiliate support and two notches of cross-sector support uplift from S-Finanzgruppe; (3) the results of Moody's LGF analysis; and (4) the unchanged "moderate" government support assumptions of one notch.

BayernLB's affirmed ba2 BCA reflects its overall satisfactory financial profile and in particular its sound capital metrics, which are strong compared with those of similarly rated banks. The BCA further takes into account the requirement to repay EUR2.3 billion of capital to the Free State of Bavaria (Aaa stable) by end-2017 and, although significant provisions have already been set aside, the tail risks relating to potential legal obligations towards its former subsidiary - Austria's Heta Asset Resolution AG (Heta; Carinthian-state-guaranteed senior unsecured debt Ca negative). The limited visibility of the bank's future risk-adjusted profitability and capital generation arising from the ongoing overhaul of the business model will likely remain a rating constraint for some time.

Under Moody's Advanced LGF analysis, BayernLB's long-term deposit and senior unsecured debt ratings take into account a very low loss-given-failure for senior unsecured debt and wholesale deposits, leading Moody's to two notches of uplift above BayernLB's baa3 Adjusted BCA.

The outlook on the long-term deposit rating is positive and the outlook on the long-term senior unsecured debt rating is negative, indicating that a modified insolvency order in Germany would place diverging pressures on BayernLB's senior debt and deposit ratings.

--BERLIN HYP AG

The confirmation of Berlin Hyp's A2 long-term deposit and senior unsecured debt ratings reflects (1) the affirmation of the bank's ba2 BCA; (2) the upgrade of the adjusted BCA to baa2, thereby incorporating "very high" affiliate support -- given that Berlin Hyp is a fully owned group member -- resulting in three notches of cross-sector support uplift from S-Finanzgruppe; (3) the result of Moody's LGF analysis; and (4) Moody's reduced "moderate" government support assumptions, resulting in one notch of rating uplift, from four notches previously.

Berlin Hyp's BCA of ba2 reflects the bank's satisfactory risk-adjusted capitalisation as well as its established covered bond funding franchise, and its stable profitability and earnings contribution within the wider Landesbank Berlin Holding (LBBH) group. However, the bank's high-risk concentrations in the CRE lending business and its high leverage constrain the BCA and might mean that business model adjustments are necessary to comply with future leverage requirements.

Under Moody's Advanced LGF analysis, Berlin Hyp's long-term deposit and senior unsecured debt ratings take into account the very low loss-given-failure for the bank group's wholesale deposits and debt based on the substantial volume of senior unsecured debt and deposits themselves, leads to a two-notch uplift from the baa2 adjusted BCA.

The outlook on the long-term deposit rating is positive and the outlook on the long-term senior unsecured debt rating is negative, indicating that a modified insolvency order in Germany would place diverging pressures on Berlin Hyp's senior debt and deposit ratings.

--DEKABANK DEUTSCHE GIROZENTRALE (DekaBank)

The one-notch upgrade of DekaBank's long-term deposit and senior unsecured debt ratings to Aa3 reflects (1) the affirmation of the bank's baa2 BCA; (2) the affirmation of the bank's adjusted BCA of a3, thereby incorporating "very high" affiliate support -- given that DekaBank is a fully owned group member -- which continues to result in two notches of rating uplift; (3) the results of Moody's LGF analysis; and (4) Moody's reduced "moderate" government support assumptions, resulting in one notch of rating uplift instead of two notches previously.

The affirmation of DekaBank's baa2 BCA reflects the group's modest asset risk, satisfactory regulatory capital ratios and strong funding position, but also the constraints of its considerable balance-sheet leverage. The BCA level incorporates Moody's expectation that DekaBank will address this weakness and gradually reduce its leverage.

Under Moody's Advanced LGF analysis, DekaBank's long-term deposit and senior unsecured debt ratings take into account their very low loss-given-failure because of the group's high volume of senior unsecured debt outstanding as well as deposits, leading to a two-notch uplift respectively from the bank's a3 adjusted BCA.

The outlook on the long-term deposit rating is positive and the outlook on the long-term senior unsecured debt rating is negative, indicating that a modified insolvency order in Germany would place diverging pressures on DekaBank's senior debt and deposit ratings.

--HSH NORDBANK AG (HSH)

The confirmation of HSH's long-term unsecured debt and deposit ratings at Baa3 reflects (1) the two-notch upgrade of the bank's BCA to b3; (2) the equivalent upgrade of its adjusted BCA to b1 as Moody's assessment of a high probability of HSH receiving affiliate support continues to result in two notches of rating uplift; (3) the results of Moody's LGF analysis, leading to three notches of uplift from the b1 adjusted BCA; together offsetting (4) Moody's materially reduced "moderate" government support assumptions, equivalent to one notch of rating uplift, from six notches previously.

The upgrade of HSH's BCA to b3 reflects the mitigants to the group's high asset risk afforded by the EUR10 billion risk shield on a large portion of its assets, provided by the bank's public-sector owners, and HSH's adequate funding profile and liquidity position. However, HSH's limited access to capital, weak and unpredictable earnings and the resulting poor capital retention capacity constrain the BCA. In addition, the bank's continued focus on cyclical asset-based finance activities and the opacity afforded by the complex structure of support from its majority owners weigh on the BCA, and are reflected in a negative qualitative BCA-adjustment by two notches.

Under Moody's Advanced LGF analysis, HSH's long-term deposit and senior unsecured debt ratings take into account their very low loss-given-failure because of the group's high volume of subordinated and senior unsecured debt outstanding, leading to a three notch uplift respectively from the bank's b1 adjusted BCA.

The outlook on the Baa3 long-term deposit and senior unsecured debt ratings is negative, indicating several downside risks that may negatively affect HSH's long-term ratings, including (1) its weak fundamental strength and vulnerability to market stress or shocks; (2) the uncertainties linked to the still-pending decision by the European Commission on state aid; (3) possible changes in HSH's liability structure as large amounts of senior unsecured debt are scheduled to mature in 2015, which may raise the severity of loss for bond holders in resolution, as assessed in the LGF analysis; and (4) prospects of a modified insolvency order in Germany, which may place diverging pressures on HSH's senior debt and deposit ratings.

--LANDESBANK BADEN-WUERTTEMBERG (LBBW)

The one-notch upgrade of LBBW's long-term deposit and senior unsecured debt ratings to A1 incorporates (1) the affirmation of the bank's baa3 BCA; (2) the affirmation of its baa1 adjusted BCA as Moody's assessment of a high probability of LBBW receiving affiliate support from S-Finanzgruppe continues to result in two notches of rating uplift; (3) the results of Moody's LGF analysis, partially offset by; (4) Moody's reduced "moderate" government support assumptions, resulting in one notch of rating uplift, from two notches previously.

The affirmation of LBBW's baa3 BCA at the low-end of Moody's scorecard range indicates potential upside over Moody's 12-18 month outlook horizon. This reflects the rating agency's anticipation of a further improvement in the bank's financial profile, most notably with regards to capital and leverage ratios and further supported by visible improvements in the bank's underlying profitability. The rating remains constrained by the bank's limited ability to meaningfully improve its modest financial performance as well as LBBW's high exposures to domestic and international corporate and CRE portfolios that may exert pressure on the bank's profitability and, potentially, capital ratios in a highly adverse scenario.

For LBBW, Moody's LGF analysis indicates a very low loss-given-failure for senior unsecured debt and deposits, leading to a two-notch uplift on LBBW's wholesale deposits as well as its senior unsecured debt from its baa1 adjusted BCA.

The outlook on the long-term deposit ratings is positive and the outlook on the long-term senior unsecured debt ratings is negative, indicating that a modified insolvency order in Germany would place diverging pressures on LBBW's senior debt and deposit ratings. The negative effect on the bank's senior unsecured debt ratings could be exacerbated by the maturity of large amounts of grandfathered debt by year-end 2015, further reducing the volume of bail-in-able senior instruments.

--LANDESBANK BERLIN AG

The confirmation of Landesbank Berlin AG's (LBB) A1 long-term deposit and issuer/senior unsecured debt ratings reflects (1) the affirmation of the bank's ba1 BCA; (2) the one-notch upgrade of the adjusted BCA to baa1, thereby incorporating very high affiliate support and three notches of cross-sector support uplift from S-Finanzgruppe as a fully owned group member; (3) the results of Moody's LGF analysis; together more than fully offsetting (4) Moody's reduced "moderate" government support assumptions, reflected in one notch of rating uplift instead of four notches previously.

LBB's ba1 BCA is underpinned by the group's 'Very Strong-' Macro profile and its comfortable funding profile. At the same time, the standalone BCA is constrained by the bank's modest, yet stable, financial performance.

For LBB, Moody's LGF analysis indicates a very low loss-given-failure for the bank group's wholesale deposits base on the substantial volume of senior unsecured debt and deposits themselves, leads to a two-notch rating uplift from the baa1 adjusted BCA.

The outlook on the long-term deposit rating is positive and the outlook on the long-term senior unsecured debt rating is negative, indicating that a modified insolvency order in Germany would place diverging pressures on LBB's senior debt and deposit ratings.

--LANDESBANK HESSEN-THUERINGEN GZ (Helaba)

The one-notch upgrade of Helaba's long-term deposit and senior unsecured debt ratings to A1 incorporates (1) the affirmation the bank's baa3 BCA; (2) the affirmation of its baa1 adjusted BCA, as Moody's assessment of a high probability of Helaba receiving affiliate support from S-Finanzgruppe continues to result in two notches of rating uplift; (3) the results of Moody's LGF analysis; partially offset by (4) Moody's reduced "moderate" government support assumptions, resulting in one notch of rating uplift, from two notches previously.

The affirmation of the BCA reflects (1) the group's improved capital and leverage ratios; (2) its moderate asset-risk profile, displaying a sound long-run loan-loss performance; and (3) its comfortable funding profile. At the same time, the standalone BCA is constrained by the bank's substantial exposure to international CRE markets and the bank's modest, yet improving and solid, financial performance.

For Helaba, Moody's LGF analysis indicates a very low loss-given-failure for senior unsecured debt and deposits, leading to a two-notch uplift on Helaba's wholesale deposits as well as its senior unsecured debt from its baa1 adjusted BCA.

The outlook on the bank's long-term deposit ratings is positive and the outlook on the long-term senior unsecured debt rating is stable, indicating that a modified insolvency order in Germany would place positive pressure on Helaba's long-term deposit ratings.

--LANDESBANK SAAR (SaarLB)

The affirmation of SaarLB's long-term deposit rating of A3 incorporates (1) the affirmation of the bank's ba2 BCA; (2) the affirmation at baa3 of the adjusted BCA, as Moody's assessment of a high probability of SaarLB receiving affiliate support from S-Finanzgruppe continues to result in two notches of rating uplift; (3) the results of Moody's LGF analysis; which, together, fully offset (4) the unchanged "moderate" government support assumptions of one notch.

SaarLB's ba2 BCA is underpinned by (1) a higher share of profitability stemming from more stable business lines than in the past; (2) a successful reduction of non-core activities without any further profitability impairments; (3) the bank's good liquidity and efficiency; and (4) SaarLB's robust asset quality (to date). However, SaarLB is vulnerable to adverse events given significant sector concentrations in the areas of CRE and project finance with a focus on renewable energies, which is still a nascent and untested industry. In relation to the above-mentioned concentration risks, in Moody's view SaarLB's capital cushion appears limited, and exposes the bank to event risks. The level of Basel III-compliant common equity is improving, but remains relatively limited in the context of the bank's risk profile.

For SaarLB, Moody's LGF analysis indicates a very low loss-given-failure for the bank's wholesale deposits based on the substantial volume of senior unsecured debt and deposits themselves, leading to a two-notch uplift for deposits from the baa3 adjusted BCA.

The positive outlook on the bank's long-term deposit ratings indicates that a modified insolvency order in Germany would place positive pressure on SaarLB's long-term deposit rating.

--NORDDEUTSCHE LANDESBANK GZ (NORD/LB)

The A3 long-term deposit and issuer/senior unsecured debt ratings of NORD/LB were affirmed, reflecting (1) the affirmation of the bank's ba2 BCA; (2) the affirmation of its baa3 adjusted BCA, as Moody's assessment of a high probability of NORD/LB receiving affiliate support from S-Finanzgruppe continues to result in two notches of rating uplift; (3) the results of Moody's LGF analysis; together fully offsetting (4) the unchanged "moderate" government support assumptions of one notch.

The affirmation of the bank's ba2 BCA reflects continued asset-quality deterioration in the bank's concentrated shipping loan book and capital ratios that are sensitive to US dollar currency volatility. In addition, the bank displays a low level of risk-adjusted profitability compared with its global peers. The BCA also takes NORD/LB's solid funding and liquidity position into account.

For NORDLB, Moody's LGF analysis indicates a very low loss-given-failure for the bank's wholesale debt and deposits based on the substantial volume of senior unsecured debt themselves, leading to a two-notch uplift for deposits from the baa3 adjusted BCA.

NORD/LB's long-term debt outlook is negative and reflects (1) downward pressure on the bank's fundamental credit profile; and (2) the negative pressure resulting from the proposed modified insolvency order in Germany. The bank's long-term deposit rating outlook is stable and considers that a modified insolvency order in Germany would create upward rating pressure that counterbalances the downward pressure on the bank's fundamental profile

-- BREMER LANDESBANK KREDITANSTALT OLDENBURG GZ (Bremer LB)

The affirmation of Bremer LB's long-term deposit and issuer/senior unsecured debt ratings at Baa2 incorporates; (1) the affirmation of the BCA at b1; (2) the affirmation at ba2 of the adjusted BCA as Moody's assessment of a high probability of Bremer LB receiving affiliate support from S-Finanzgruppe continues to result in two notches of rating uplift; (3) the results of Moody's LGF analysis; and (4) the unchanged "moderate" government support assumptions of one notch.

The affirmation of the bank's b1 BCA reflects the bank's vulnerability to its relatively large exposures to the cyclical shipping industry, which creates pressure for the bank's earnings and capitalisation. The affirmation also reflects dependence on wholesale funding, mitigated by sufficient liquidity reserves and a strong domestic investor base.

For its LGF analysis, Moody's assumes that Bremer LB, as a majority owned domestic subsidiary, would be resolved together with NORD/LB. Therefore, the same LGF notching applies to NordLB as to Bremer LB, affording two notches of uplift from the bank's ba2 adjusted BCA.

The outlook for Bremer LB's long-term deposit rating is positive, whereas the outlook for the long-term debt ratings remains stable, indicating that a modified insolvency order in Germany would place positive pressure on Bremer LB's long-term deposit rating.

-- DEUTSCHE HYPOTHEKENBANK AG (Deutsche Hypo)

The one-notch upgrade of Deutsche Hypo's long-term deposit and senior unsecured debt ratings to A3 reflects (1) the affirmation of the BCA at b1; (2) the affirmation of the bank's baa3 adjusted BCA based on unchanged assumptions for parental support from NORD/LB ; (3) the results of Moody's LGF analysis; together partially offsetting (4) Moody's reduced "moderate" government support assumptions, reflected in one notch of rating uplift, from four notches previously.

The affirmation of the bank's b1 BCA reflects good asset quality from core on-balance-sheet lending compared with its peers, which partly mitigates Deutsche Hypo's risk concentrations in its CRE lending business as well as single-name concentrations. The bank benefits from access to cost-efficient funding based on its covered bond franchise. Deutsche Hypo is exempt from stand-alone minimum capital requirements; however, its BCA is constrained by the vulnerability of consolidated capital ratios of its owner, NORD/LB, to macroeconomic developments.

For its LGF analysis, Moody's assumes that Deutsche Hypo, as fully-owned domestic subsidiary, would be resolved together with NORD/LB. Therefore, the same LGF notching applies to NORD/LB as to Deutsche Hypo, affording two notches of uplift from the bank's baa3 adjusted BCA.

Deutsche Hypo's long-term debt outlook is negative and reflects (1) downward pressure on the fundamental credit profile of NORD/LB; and (2) the negative pressure resulting from the proposed modified insolvency order in Germany. The bank's long-term deposit rating outlook is stable and considers that a modified insolvency order in Germany would create upward rating pressure that counterbalances the downward pressure on the parent's fundamental profile.

--SPARKASSENVERBAND BADEN-WURTTEMBERG (SVBW)

The confirmation of SVBW's Aa3 issuer ratings takes into account positive effects from considerations regarding SVBW's intrinsic financial strength as well as its members' liability structures, offset by the reduction of Moody's government support assumptions to "moderate" from " very high" previously.

The rating agency's assessment takes into account the strong legal and statutory links between SVBW and its 53 member savings banks. The savings banks are fully and jointly liable for SVBW's liabilities, and are obliged to cover any losses that SVBW may incur. The rating thus also reflects the sound commercial and financial profile of the savings banks in the region, characterised by strong underlying profitability, good capitalisation and significant capital reserves. Furthermore, the rating takes into account SVBW's low-risk profile and conservative financial positioning.

By assessing the association's financial strength based on the aggregated financials of the local savings banks, Moody's performs an LGF analysis consistent with the BCA approach. Whilst SVBW is a bankruptcy-remote public-law entity, its member banks are subject to the BRRD. In Moody's view, SVBW is economically indistinguishable from the savings banks both pre- and post-failure. As such, Moody's bases its LGF analysis on the aggregated balance sheet, as a going concern, and indicates a moderate low loss-given-failure for senior unsecured debt, and thus SVBW's issuer ratings.

The negative outlook on SVBW's issuer rating reflects the proposed changes to the German insolvency law, which, if implemented as planned, would subordinate senior debt to the detriment of senior unsecured creditors, and thus SVBW's issuer rating.

--SPARKASSEN FINANZGRUPPE (S-Finanzgruppe)

The affirmation of the Aa2 CFR of S-Finanzgruppe with a stable outlook reflects (1) the affirmation of the group's a2 BCA; (2) the results of Moody's LGF analysis; and (3) the unchanged "moderate" government support assumptions of one notch.

S-Finanzgruppe's BCA of a2 is supported by the savings banks' low-risk profiles, overall improving capitalisation and strong funding situation. The rating also captures the weaker business profiles of the Landesbanks (regional public-sector banks), which continue to benefit from the cross-sector joint-liability scheme (Haftungsverbund).

For S-Finanzgruppe, the combined effects of moderate government support and the special characteristics of the CFR have a neutralising effect. A CFR is assigned to a corporate family as if the entity had a single class of debt. This has positive effects stemming from Moody's LGF analysis, which takes into account the severity of loss faced by the different liability classes across the liability structure. Under the CFR assumption of a single class of debt, a simulated LGF analysis indicates a very low loss-given-failure, which compensates for a reduction in Moody's government support assumption to moderate, equivalent to a one-notch uplift.

--KREISSPARKASSE KOELN (KSK Koeln)

The one-notch downgrade of KSK Koeln's long-term deposit and senior unsecured debt ratings to A1 incorporate (1) the affirmation of the bank's baa1 BCA; (2) the affirmation at a2 of the adjusted BCA, thereby incorporating very high affiliate support and the unchanged two notches of cross-sector support uplift from S-Finanzgruppe; (3) the results of Moody's LGF analysis; together not fully offsetting (4) Moody's reduced "moderate" government support assumptions, reflected in one notch of rating uplift instead of two notches previously.

The affirmation of the bank's baa1 BCA reflects (1) strong liquidity based on a broad retail deposit base; (2) improved capital ratios and a declining trend in problem loans; which mitigate (3) risk concentrations in the local real-estate market.

For KSK Koeln, Moody's LGF analysis indicates a moderate loss-given-failure for the bank's wholesale deposits because of the moderate volume of wholesale deposits and senior unsecured debt, leading to no uplift for deposits from the a2 adjusted BCA.

The outlook on the bank's long-term deposit ratings is stable and the outlook on the long-term senior unsecured debt rating is negative, indicating that a modified insolvency order in Germany would place negative pressure on KSK Koeln's long-term debt rating.

--SPARKASSE KOELN BONN (SKKB)

The confirmation of SKKB's long-term deposit and senior unsecured debt ratings at A1 reflects (1) a one-notch upgrade of the bank's BCA to ba2; (2) the two-notch upgrade of its adjusted BCA to baa1 which is underpinned by the higher BCA and four notches (instead of three previously) of affiliate support, which reflects a "very high" cross-sector support probability from S-Finanzgruppe; (3) the results of Moody's LGF analysis; which fully offsets (4) Moody's reduced "moderate" government support assumptions, equivalent to one notch of rating uplift instead of five notches previously.

The upgrade of SKKB's BCA to ba2 reflects the bank's gradually improving asset quality, its progress in retaining earnings and bolstering its still-weak common equity base as well as its sound funding structure and liquidity position.

Under Moody's Advanced LGF analysis, SKKB's long-term deposit and senior unsecured debt ratings take into account the very low loss-given-failure because of the group's high volume of subordinated and senior unsecured debt outstanding, leading to a two-notch uplift respectively from the bank's baa1 adjusted BCA.

The positive outlook on the bank's long-term deposit ratings and the negative outlook on the bank's senior unsecured debt ratings indicate that a modified insolvency order in Germany would place diverging pressures on SKKB's debt and deposit ratings.

RATIONALE FOR COUNTERPARTY RISK ASSESSMENTS

Moody's has also assigned CR Assessments to a number of rated Landesbanks and savings banks, including their rated subsidiaries and branches. CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails, and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than expected loss and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR Assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities.

The CR Assessment takes into account the issuer's standalone strength as well as the likelihood of affiliate and government support in the event of need, reflecting the anticipated seniority of these obligations in the liabilities hierarchy. The CR Assessment also incorporates other steps authorities can take to preserve the key operations of a bank, should it enter a resolution.

For the affected banks, the CR Assessment, prior to government support, is in most cases positioned three notches above the Adjusted BCA and therefore above the senior unsecured and deposit ratings, reflecting Moody's view that its probability of default is lower than that of senior unsecured debt and deposits. Moody's believes that senior obligations represented by the CR Assessment will be more likely preserved in order to limit contagion, minimize losses and avoid disruption of critical functions.

For most of the affected banks, the CR Assessments also benefit from government support in line with Moody's support assumptions on deposits and senior unsecured debt. This reflects Moody's view that any support provided by governmental authorities to a bank which benefits senior unsecured debt or deposits is very likely to benefit operating activities and obligations reflected by the CR Assessment as well, consistent with Moody's belief that governments are likely to maintain such operations as a going-concern in order to reduce contagion and preserve a bank's critical functions.

WHAT COULD CHANGE THE RATINGS UP/DOWN

The banks' BCAs could be upgraded following (1) a reduction (or mitigation) of asset risk, including market risk; (2) a strengthening of common equity levels, in particular leverage ratios; and (3) greater stability of profits for those banks whose profits have previously shown volatility.

The banks' BCAs could be downgraded following (1) a material deterioration in its asset quality, particularly for those banks that display risk concentrations; (2) a failure to improve leverage at an appropriate pace as higher regulatory requirements are introduced or phased in; and/or (3) a material deterioration of profits, which have recently benefitted from very low risk charges.

Furthermore, alterations in the bank's liability structure may change the amount of uplift provided by Moody's LGF analysis and lead to a higher or lower notching from the banks' Adjusted BCAs, thereby affecting their debt and/or deposit ratings.

The prospective change in insolvency legislation in Germany that aims to subordinate senior unsecured debt to deposits in resolution would -- if implemented -- place downward pressure on senior unsecured debt ratings (if not compensated by additional subordination) and upwards pressure on deposit ratings.

PRINCIPAL METHODOLOGIES

The principal methodology used in these ratings, except for Landwirtschaftliche Rentenbank, was Banks published in March 2015. For Landwirtschaftliche Rentenbank, the methodology used was Government-Related Issuers published in October 2014.Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

Please click on this link (http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_182453) for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

• Unsolicited ratings

• Non participating issuers

• [EU only] participation in unsolicited ratings

• Person approving the credit rating

• Releasing office

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.

The following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating:

For identification of which credit ratings have payors that have or have not paid Moody's for services other than determining a credit rating in the most recently ended fiscal year, please see the detailed list under the following link: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_182453. The list is an integral part of this press release.

The ratings of rated entity Bremer Landesbank Kreditanstalt Oldenburg GZ were not initiated or not maintained at the request of the rated entity.

The rated entity Bremer Landesbank Kreditanstalt Oldenburg GZ or related third parties did not participate in the rating process. Moody's was not provided, for purposes of the rating, access to books, records and other relevant internal documents of the rated entity or related third party.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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 concludes reviews on 9 German public-sector banks' ratings; takes action on another 6 banks' ratings

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