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Rating Action:

Moody's downgrades Austria's Hypo Tirol to A2/D from Aa1/C

03 Aug 2010

Outlook on all ratings is stable

Frankfurt am Main, August 03, 2010 -- Moody's Investors Service has today downgraded Hypo Tirol Bank AG's (Hypo Tirol) senior unsecured debt and deposit ratings to A2 from Aa1 as well as its subordinate debt rating to A3 from Aa2. At the same time, Moody's downgraded the Bank Financial Strength Rating (BFSR) to D from C. Short-term ratings were affirmed at Prime-1. The outlook on all ratings is stable. This rating action concludes the review initiated on 19 November 2009.

The ratings for obligations that qualify for the grandfathering of "Ausfallbürgschaft" (a guarantee obligation from the Austrian Federal State of Tirol) remained unaffected by today's rating action.

BFSR DOWNGRADED DUE TO ASSET QUALITY PRESSURE AND LOW PROFITABILITY

Moody's downgraded the BFSR to D, mapping to a Baseline Credit Assessment (BCA) of Ba2, in light of stress tests on Hypo Tirol's earnings, assets and capital. The outcome of the tests reflect the rating agency's view that the bank is only weakly capitalised in the context of its risk profile.

At year-end 2009, the level of problem loans was above 7% of gross loans (FYE2008: 5.1%). Aggravated by losses associated with the M-Solar client fraud case in 2009 (write-off EUR22 million), bottom-line profitability was severely eroded, leaving the bank with net profit of EUR4 million at year-end 2009 (from EUR11 million in 2008 and EUR25 million in 2007). The limited loss absorption capacity from recurring earnings in case of stress is partly mitigated by the bank's capital, with a Tier 1 ratio of 7.04% following a capital increase in late 2009.

As a result, profitability and asset quality metrics position Hypo Tirol's BFSR in the D range, and Moody's expects the bank to only gradually restore these metrics to levels more commensurate with a higher BFSR.

The rating agency recognises Hypo Tirol's focused efforts to address weaknesses in its risk management and control structures following a change in management. Downward rating pressure could be triggered by larger-than-anticipated levels of problem loans and a failure to improve risk-weighted profitability over the medium term.

LONG-TERM DEBT AND DEPOSIT RATINGS REFLECT A VERY HIGH PROBABILITY OF SUPPORT

Hypo Tirol's A2 long-term debt and deposit ratings continue to benefit from Moody's assessment of a very high probability of regional local government and systemic support. Moody's notes that the dependence of Hypo Tirol's strong investment-grade ratings on outside support has increased, which is reflected by the increased (six-notch) uplift from the Ba2 BCA. Should the BFSR weaken to D-, the A2 debt and deposit rating could come under pressure, which we do not envisage as likely at present, as indicated by the stable outlook.

PREVIOUS RATING ACTIONS AND METHODOLOGIES

Moody's last rating action on Hypo Tirol was on 19 November 2009, when the bank's BFSR and debt and deposit rating were put under review for possible downgrade.

The principal methodologies used in rating Hypo Tirol were "Bank Financial Strength Ratings: Global Methodology" (February 2007) and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" (March 2007), which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Innsbruck, Austria, Hypo Tirol Bank AG had total assets of EUR12.2 billion at year-end 2009. The bank reported a net income of EUR4 million for 2009 and had Tier-1 ratio of 7.04%.

Frankfurt am Main
Claude Raab
Analyst
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

Moody's Deutschland GmbH
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Frankfurt am Main 60322
Germany

Moody's downgrades Austria's Hypo Tirol to A2/D from Aa1/C
No Related Data.
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