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Rating Action:

Moody's concludes reviews on eight German commercial banking groups' ratings

19 Jun 2015

Actions conclude methodology-related reviews and revision of government support assumptions

Frankfurt am Main, June 19, 2015 -- Moody's Investors Service has today concluded its rating reviews on eight German commercial banking groups. 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 the agency's new bank rating methodology and revisions to Moody's government support assumptions for these banks.

In light of the new bank rating methodology, Moody's rating actions on the German commercial banking groups generally reflect the following considerations (1) the Macro Profiles applicable to each group or bank, based on the geographical breakdown of their asset bases; (2) these banks' financial profiles and related qualitative factors; (3) the protection offered to depositors and senior creditors in the event of resolution, as captured by Moody's Advanced Loss Given Failure (LGF) analysis, reflecting the benefit of instrument volume and subordination; and (4) Moody's view of a decline in the likelihood of government support for German banks.

Among the rating actions on the eight German commercial banking groups and their subsidiaries that Moody's has taken are the following:

- Five long-term bank deposit ratings upgraded, one affirmed, three confirmed and two downgraded

- Three short-term bank deposit ratings upgraded, four affirmed, three confirmed and one downgraded

- Six bank senior unsecured debt ratings upgraded, two confirmed and one downgraded

- One short-term bank senior unsecured debt rating upgraded, five affirmed and one downgraded

- Six baseline credit assessments (BCAs) upgraded, four affirmed and two downgraded

Moody's has also assigned Counterparty Risk (CR) Assessments to the eight German commercial banking groups and their branches and/or subsidiaries, in line with its new bank rating methodology.

Bank level subordinated debt ratings have either been affirmed or upgraded and most of the hybrid securities ratings were upgraded as part of this rating action. Subsequently, Moody's has withdrawn the outlooks on all subordinated and junior/hybrid instrument ratings for its own business reasons.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 some debt ratings), outlooks primarily reflect prospective changes to insolvency legislation affecting the seniority of depositors and senior unsecured debt investors in Germany.

Please click on http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_182452 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

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 bank rating methodology ("Banks", published on 16 March 2015):

http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_179038.

RATINGS RATIONALE

The new bank rating 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) MACRO PROFILES RANGING FROM "STRONG" TO "VERY STRONG-"

The Macro Profile constitutes an assessment of the macroeconomic environment in which a bank operates. The banks' Macro Profiles derive from their asset bases, which are dominated by exposures to borrowers and issuers in Germany (Aaa stable), which has a Macro Profile of "Very Strong-". Given some modest concentrations outside Germany, and with foreign exposures mostly to countries within the EU, the banks' individual Macro Profiles vary between "Strong" and "Very Strong-".

Banks in Germany 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 the lack of a systemic house price bubble support credit conditions. Funding conditions for banks are characterised by a strong domestic deposit base and good wholesale market access. The Macro Profile also incorporates the German banking system's high market fragmentation, low fee income generation and intensifying competition for domestic business.

(2) GERMAN COMMERCIAL BANKS DISPLAY SOLID FINANCIAL RATIOS, BUT CHALLENGES REMAIN

The considerations that support German commercial banks' BCAs are the stable operating environment and the banks' improving financial stability, in particular their access to various funding sources, improved capital positions and generally good asset quality.

The creditworthiness of the German sovereign and the country's solid economic development as well as the country's low unemployment support Moody's view of a continued, stable operating environment for German commercial banks (Moody's forecasts German GDP to grow 2.0% in 2015 and 1.8% in 2016).

Four of the eight banking groups affected by this rating action are either diversified wholesale institutions or specialised lenders. These banks' BCAs range from ba3 to baa2, reflecting varying degrees of challenges resulting from higher-risk exposures such as commercial real-estate (CRE), shipping finance and structured credit that continue to pose tail risks, as well as from more stringent capital requirements and earnings pressures. However, improving asset quality and capital, and solid funding and liquidity mitigate these pressures.

The other four banking groups are primarily domestic retail-oriented institutions. These banks' BCAs range from baa2 to a2, supported by the banks' solid financial fundamentals including strong asset quality and liquidity as well as adequate capitalisation. The protracted low interest-rate environment and competitive pressures represent the main fundamental challenges for these banks.

(3) PROTECTION OFFERED TO CREDITORS MORE SENIOR IN THE CREDITOR HIERARCHY, 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. For the more retail-oriented banks, Moody's has considered a proportion of 10% of junior deposits of the banks' total deposit base, below the estimated EU-wide average of 26% applied to commercially more diversified banks.

The Advanced LGF analysis generally results in a "very low" loss-given-failure for long-term junior deposits as well as in a "very low" or "low" loss-given-failure for 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.

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 (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.

(4) REDUCED LIKELIHOOD OF GOVERNMENT SUPPORT

Moody's has also lowered its expectations about the degree of support that the government might provide to a bank in Germany. The main trigger for this reassessment was the introduction of the BRRD. However, a decline in expected loss assumptions under the LGF framework in some cases wholly, or more than, offset the negative impact on ratings from Moody's reduced government support assumptions.

Following Moody's revised support assessments, only three banking groups continue to benefit from government support, from five previously.

RATIONALE FOR THE OUTLOOK ON DEBT AND DEPOSIT RATINGS

The different outlooks on deposits and debt 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

COMMERZBANK AG

The affirmation of Commerzbank's Baa1 deposit ratings and the confirmation of its Baa1 issuer/senior unsecured debt ratings reflect (1) the affirmation of the bank's ba1 BCA and adjusted BCA; (2) the results of Moody's LGF analysis that provides two notches of uplift from the bank's adjusted BCA; thereby offsetting (3) the reduction of government support uplift to one notch from three notches previously.

The positioning of the ba1 BCA at the low-end of Moody's scorecard range indicates potential upside over Moody's 12-18 month rating outlook horizon. This reflects the rating agency's anticipation of a further improvement in the bank's financial profile, most notably with regards to asset quality and capital and its continued sound funding profile. The rating remains constrained by the bank's very high, albeit declining, exposures to international CRE portfolios as well as ship finance that may exert pressure on the bank's profitability and, potentially, capital ratios in a highly adverse scenario.

Under Moody's LGF framework, Commerzbank's long-term deposit as well as its issuer/senior unsecured debt ratings take into account their very low loss-given-failure, owing to the group's high volume of subordinated and senior unsecured debt.

Commerzbank's long-term deposit and issuer/senior unsecured ratings continue to benefit from one notch of government support uplift despite the revision of government support expectations to "moderate" from "high", in line with Moody's support assumptions for other systemically relevant banking groups in Europe.

The outlook on the long-term deposit ratings is positive indicating that a modified insolvency order in Germany would place upward pressure on these ratings. Despite related negative pressures on the bank's long-term issuer/senior unsecured debt ratings that may result from this legislative change, the outlook on the bank's long-term issuer and senior unsecured debt ratings is stable, indicating that Moody's anticipates upward pressure on the bank's fundamental credit profile, supported by further improving and sustainable results and the bank's capital increase in April 2015.

--- HYPOTHEKENBANK FRANKFURT AG (HF)

HF's long-term deposit and issuer/senior unsecured debt ratings were upgraded by two notches to Baa1. Concurrently, the bank's short-term ratings were upgraded to Prime-2 from Prime-3. Furthermore, HF's BCA and adjusted BCA were upgraded by seven notches and one notch, respectively, to ba1. The rating action reflects Moody's decision to align HF's ratings with those of its parent Commerzbank as a highly integrated and harmonized subsidiary. The outlooks on Commerzbank's ratings accordingly apply to all of HF's ratings.

--- ERSTE EUROPAEISCHE PFANDBRIEF- UND KOMMUNALKREDITBANK AKTIENGESELLSCHAFT IN LUXEMBURG S.A. (EEPK)

The two-notch upgrade of EEPK's issuer rating to Baa3 reflects (1) the upgrade of the bank's BCA by three notches to b2 and the affirmation of its ba2 adjusted BCA, which incorporates support from its parent Commerzbank; (2) the very low loss-given failure for EEPK's debt instruments as a result of Moody's LGF analysis; and (3) Moody's unchanged assumption that EEPK would not receive government support in the event of need.

The upgrade of the BCA and the affirmation of the adjusted BCA reflects (1) recently improved capitalisation as a result of the merger of Hypothekenbank Frankfurt International S.A. (HFI, unrated) and the previous EEPK entity; and (2) continued parental commitment as EEPK is part of Commerzbank's treasury unit in Luxembourg where major parts of its portfolio remain in run-down.

EEPK is primarily funded by Commerzbank group which Moody's considers to be bail-inable under its Advanced LGF analysis. EEPK's long-term issuer ratings therefore take into account their very low loss-given-failure resulting in two notches of LGF uplift.

--- COMMERZBANK INTERNATIONAL S.A. (CISAL)

CISAL's Baa2 long-term deposit and its (P)Baa2 senior unsecured debt ratings were confirmed, incorporating (1) a two-notch downgrade of the bank's BCA and adjusted BCA to ba1; (2) the results of Moody's LGF analysis that provided two notches of uplift from the bank's adjusted BCA; and (3) Moody's unchanged assumption that CISAL would not receive government support in the event of need.

The downgrade of CISAL's BCA reflects Moody's decision to align the BCA with that of its parent Commerzbank, taking into account the very modest size of CISAL and the limited stand-alone franchise of the bank's private wealth management operations in Luxembourg (Aaa stable).

As a result of the alignment, Moody's performed the LGF analysis at Commerzbank group level based on the assumption that resolution would be performed for the parent and the subsidiary at the same time, leading to two notches of uplift from CISAL's ba1 adjusted BCA.

The outlook on the long-term deposit ratings is positive, mirroring the outlook on the long-term deposit ratings of its parent bank.

UNICREDIT BANK AG (UCB)

UCB's long-term deposit ratings were upgraded by two notches to A2 and its issuer/senior unsecured debt ratings were upgraded by one notch to A3. Concurrently, the short-term deposit ratings were upgraded to Prime-1 whilst the short-term debt ratings were affirmed at Prime-2. The rating action reflects (1) the one-notch upgrade of the bank's BCA and adjusted BCA to baa2, triggered by Moody's decision to allow a wider gap of two notches instead of one between the bank's BCA and that of its Italian parent bank, UniCredit SpA; (2) the results of Moody's LGF analysis; and (3) Moody's assumption of a moderate probability of government support in the event of need, resulting in an unchanged one notch of government support uplift.

The upgrade of the BCA to baa2 reflects Moody's assessment that the somewhat weaker credit strength of UCB's Italian parent bank is potentially less limiting under the BRRD because Europe's resolution regime -- albeit untested -- may allow for a ring-fencing of strong and viable subsidiaries in case of a resolution, prompted by distress at the parent level. UCB's baa2 BCA is underpinned by very strong capitalisation which duly mitigates elevated asset risk, an adequate funding structure and sound liquidity.

Under Moody's LGF framework, UCB's long-term deposit and senior unsecured debt ratings take into account their very low (for deposits) or low (for debt) loss-given-failure. This is because UCB's modest amounts of subordinated instruments are somewhat mitigated by a high volume of senior debt and the very large volume of deposits, leading to one notch of uplift for the senior unsecured debt ratings and two notches for UCB's deposit ratings from the bank's baa2 adjusted BCA.

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

--- UNICREDIT LUXEMBOURG S.A. (UCB LUX)

UCB Lux's long-term deposit ratings were upgraded by three notches to A3 and its issuer rating by two notches to Baa1. Concurrently, the short-term deposit ratings were upgraded to Prime-2. The rating action incorporates (1) the one-notch upgrade of the bank's BCA and adjusted BCA to baa2, which remain aligned with those of its Munich-based parent bank; (2) the results of Moody's LGF analysis; and (3) Moody's unchanged assumption that UCB Lux would not receive government support in the event of need.

Moody's LGF analysis -- performed at the group level and resulting in two notches of uplift for deposits -- also benefits UCB Lux' deposit ratings, based on the assumption that resolution would be performed for the parent and the subsidiary at the same time.

The outlook on the long-term deposit rating is positive, and the outlook on the issuer rating is negative, mirroring the outlooks on the long-term deposit and issuer ratings of UCB Lux's parent bank.

ING DIBA AG

The confirmation of ING DiBa's long-term deposit ratings at A2 reflects (1) the one-notch upgrade of the bank's BCA and adjusted BCA to a2, triggered by Moody's decision to allow a wider gap of two notches instead of one between the bank's BCA and that of its Dutch parent bank, ING Bank N.V. (deposits A1 stable, BCA baa1); (2) the results of Moody's LGF analysis; and (3) Moody's assumption of a low probability of government support, resulting in the removal of one notch of government support uplift.

The upgrade of the BCA to a2 reflects Moody's assessment that the somewhat weaker credit strength of its Dutch parent bank is potentially less limiting under the BRRD because Europe's resolution regime - albeit untested - may allow for a ring-fencing of strong and viable subsidiaries in case of a resolution prompted by distress at the parent level. The a2 BCA is underpinned by low asset risk, strong capitalisation, stable profits and a solid funding structure.

Under Moody's LGF framework, ING DiBa's long-term deposit ratings take into account the moderate loss-given-failure for depositors because the very high volume of deposits mitigates the absence of subordinated/senior debt in the bank's liability structure, leading to no uplift for the deposit rating from the bank's a2 adjusted BCA.

The outlook on the long-term deposit ratings is stable, indicating that a modified insolvency order in Germany would not place any positive pressure on ING DiBa's deposit rating.

VOLKSWAGEN FINANCIAL SERVICES AG (VW FS AG)

Moody's upgraded the long-term senior unsecured debt rating of VW FS AG by two notches to Aa3, reflective of the beneficial result of Moody's LGF analysis for the institution's senior unsecured debt. Moody's performed the Advanced LGF analysis at VW FS group level which consists primarily of liabilities of its subsidiary Volkswagen Bank GmbH.

The outlook on the long-term debt rating is stable, indicating that a modified insolvency order in Germany would not place any negative pressure on VW FS AG's debt rating.

--- VOLKSWAGEN BANK GMBH (VW BANK)

The two-notch upgrade of VW Bank's long-term deposit and senior unsecured debt ratings to Aa3, incorporates (1) the affirmation of the bank's BCA and adjusted BCA at baa2 and a2, respectively; and (2) the results of Moody's LGF analysis. Government support assumptions for VW Bank remain low and are unaffected by Moody's revised government support assumptions. As a result, they continue to provide no ratings uplift.

The affirmation of the bank's baa2 BCA reflects (1) VW Bank's good profitability level in the domestic context; (2) a strong retail-oriented deposit base and good funding diversification, including access to liquidity lines granted by its ultimate parent Volkswagen AG (A2 stable), which mitigate a high degree of liquid asset encumbrance; and (3) satisfactory capital levels despite steady loan growth.

Moody's performed the Advanced LGF analysis at VW FS group level which results in a very low loss-given-failure for senior unsecured debt and wholesale deposits because of the substantial volume of senior unsecured debt, leading to a two-notch uplift for both debt and deposits from the a2 adjusted BCA.

The outlook on the 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 VW Bank's long-term deposit ratings and not affect senior unsecured debt ratings.

DEUTSCHE PFANDBRIEFBANK AG (pbb)

pbb's long-term deposit and senior unsecured debt and ratings were downgraded by two notches to Ba1. Concurrently, the short-term ratings were downgraded to Not-Prime from Prime-2. The rating action incorporates (1) a two-notch upgrade of the bank's BCA and adjusted BCA to ba3; (2) the results of Moody's LGF analysis; and (3) Moody's assumption of a low probability of government support, resulting in the elimination of six notches of government support uplift.

The upgrade of pbb's BCA to ba3 reflects the bank's gradual progress in reducing legacy assets and improving underlying profitability, as well as sound asset quality and a satisfactory liquidity position. At the same time, the BCA remains constrained by the cyclical nature of its CRE finance activities and the resulting risks to capital, also considering pbb's considerable balance-sheet leverage.

Under Moody's Advanced LGF analysis, pbb'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 two-notch uplift, respectively, from the bank's ba3 adjusted BCA.

Moody's decision to remove government support from pbb's senior debt and deposit ratings reflects a combination of (1) pbb's planned privatisation; (2) its modest size relative to the German banking industry; and (3) Moody's view that -- irrespective of the government's intention to maintain a minority stake in pbb for some time -- the government is unlikely to once more provide support to pbb. The latter is based on Moody's central scenario that pbb's privatisation will be successfully concluded and takes into account plans that pbb will redeem the government's sizeable hybrid capital investment in the bank during 2015.

The outlook on the deposit ratings is positive and the outlook senior unsecured debt ratings is stable, indicating that a modified insolvency order in Germany would place upward pressure on pbb's deposit ratings whilst the anticipated rating effect would likely be neutral for its senior unsecured debt ratings.

KFW IPEX-BANK GMBH (IPEX-BANK)

The two-notch downgrade of IPEX-Bank's long-term deposit rating to A2 reflects (1) the affirmation of the bank's baa3 BCA and a six notch downgrade of the adjusted BCA to baa3; (2) Moody's LGF analysis that provides three notches of uplift from the bank's adjusted BCA; and (3) Moody's assessment of a moderate probability of IPEX-Bank receiving government support, resulting in one additional notch of rating uplift.

The affirmation of IPEX-Bank's baa3 BCA reflects the bank's elevated asset risk, which derives from its focus on export and project finance activities which include ship finance. Its adequate capitalisation and low funding risks partly mitigate aspects of the bank's asset risk. Moody's assessment of IPEX-Bank's asset risk takes into account considerable concentration risk with regard to both industries and single-borrower exposures, which is inherent to the bank's business model.

Moody's removed affiliate support from IPEX-Bank's ratings, based on Moody's view that support from the bank's parent institution, Kreditanstalt fuer Wiederaufbau (KfW; Aaa stable), would likely amount to government support and therefore be subject to the European Union's state aid rules and the BRRD. The agency therefore downgraded IPEX-Bank's adjusted BCA to baa3, which is the same level as the BCA.

At the same time, IPEX-Bank's deposit ratings strongly benefit from the fact that IPEX-Bank is almost exclusively financed by its parent. Moody's Advanced LGF analysis for IPEX-Bank considers this funding to be bail-in-able and subordinated to any third-party deposits. Given the large volume parent funding, IPEX-Bank's long-term deposit ratings would incur an extremely low loss-given-failure in the event of liquidation or resolution, resulting in three notches of uplift from its baa3 adjusted BCA.

Given its importance for and close integration into the business strategy of KfW as a government-guaranteed financial institution, IPEX-Bank benefits from an additional notch of government support.

The outlook on the long-term deposit ratings is stable, indicating that a modified insolvency order in Germany would not affect IPEX-Bank's deposit ratings.

DEBEKA BAUSPARKASSE AG (DEBEKA)

The confirmation of Debeka's long-term deposit ratings at Baa1 reflects (1) the affirmation of the bank's baa1 BCA, and (2) the results of Moody's LGF analysis. Government support assumptions for Debeka remain low and are unaffected by Moody's revised government support assumptions. As a result, they continue to provide no ratings uplift.

The affirmation of the bank's baa1 BCA reflects (1) the continued decline in profitability and net interest margin recorded in 2014, which Moody's expects to constitute an ongoing burden for the bank as long as the low interest-rate environment persists; (2) solid capital ratios that are conservatively calculated under the standard approach; (3) Debeka's low dependence on confidence-sensitive wholesale funding sources; and (4) a highly collateralised and granular loan book, predominantly invested in retail residential mortgages originated in Germany.

Under Moody's Advanced LGF analysis, Debeka's long-term deposit rating takes into account the 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 bank's baa1 adjusted BCA.

The negative outlook on Debeka's deposit ratings reflects the challenges posed to Debeka's earnings generation capacity resulting from the persistent low interest-rate environment, which is likely to exert downward pressure on the bank's BCA.

BAUSPARKASSE MAINZ AG (BKM)

The one notch upgrade of BKM's long-term deposit ratings to A3 incorporates a one-notch downgrade of the bank's BCA to baa2, which is more than offset by the results of Moody's LGF analysis that provide two notches of rating uplift. Government support assumptions for BKM remain low and are unaffected by Moody's revised government support assumptions. As a result, they continue to provide no ratings uplift.

The downgrade of the bank's BCA by one notch to baa2 reflects (1) the bank's relatively weak 2014 financial results; and (2) the depressed earnings outlook in the current low interest-rate environment. The BCA continues to be supported by solid capitalisation metrics and a strong funding and liquidity profile.

Under Moody's Advanced LGF analysis, BKM's long-term deposit rating takes into account the very low loss-given-failure for the bank's wholesale deposits because of the substantial volume deposits themselves, leading to a two-notch uplift for deposits from the baa2 adjusted BCA.

The outlook on the long-term deposit rating is positive, indicating that a modified insolvency order in Germany would place upward pressure on BKM's deposit ratings.

RATIONALE FOR COUNTERPARTY RISK (CR) ASSESSMENTS

Moody's has also assigned CR Assessments to the eight German commercial banking groups and their branches/subsidiaries. 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 German commercial banking groups, the CR Assessment, prior to government support, is in most cases positioned three notches above the adjusted BCA and therefore above 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 likely be preserved in order to limit contagion, minimize losses and avoid disruption of critical functions.

For three of the affected German banking groups and, 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. The CR Assessments of five other banking groups do not benefit from government support.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Upward rating momentum on any of the affected German banks' ratings could develop from (1) a sustainable and significant improvement in the banks' profitability; (2) further improvements in and the maintenance of the banks' and the groups' sound asset quality; (3) materially stronger capital positions; and/or (4) a substantial improvement of the banks' liquid resources that significantly exceeds the banks' confidence-sensitive wholesale funding sources.

Downward rating pressure could emerge if (1) asset quality and/or credit underwriting standards deteriorate beyond Moody's current expectations; (2) current revenue and profitability pressures intensify, especially if the low interest-rate environment persists or even worsens; (3) the domestic macroeconomic environment deteriorates such that unemployment rises markedly and the German real-estate markets weaken; and/or (4) the banks' liquidity profiles deteriorate significantly.

Upward (or downward) pressure on the long-term debt and deposit ratings could develop if the individual banks' subordinated instruments increase (or decrease) relative to their tangible banking assets, which could result in additional (or fewer) notches of uplift resulting from Moody's LGF analysis, thereby affecting their debt and/or deposit ratings.

The LGF analysis may further be affected by the proposed changes to the German insolvency law, which, if implemented as planned, would subordinate senior debt to deposits to the benefit of depositors and to the detriment of senior unsecured creditors, if not compensated for by changes in the volumes of the respective debt classes under Moody's LGF framework.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

Please click on this link (http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_182452) 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 ratings of rated entities Deutsche Pfandbriefbank AG, DEPFA Deutsche Pfandbriefbank AG, Westfaelische Hypothekenbank AG, and Hypo Real Estate Bank International AG were initiated by Moody's and were not requested by these rated entities.

Rated entities Deutsche Pfandbriefbank AG, DEPFA Deutsche Pfandbriefbank AG, Westfaelische Hypothekenbank AG, and Hypo Real Estate Bank International AG or their agent(s) participated in the rating process. These rated entities or their agent(s), if any, provided Moody's - access to the books,records and other relevant internal documents of the rated entities.

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 as indicated:

Moody's was not paid for services other than determining a credit rating in the most recently ended fiscal year by the person(s) that paid Moody's to determine this credit rating.

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.

Michael Rohr
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 eight German commercial banking groups' ratings
No Related Data.
© 2019 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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