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 Subsequently, Moody's has withdrawn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
