Action concludes the reviews initiated on 15 February 2012
Frankfurt am Main, June 22, 2012 -- Moody's Investors Service has today downgraded by one notch the long-term
senior debt and deposit ratings of Deutsche Postbank AG (Postbank) to
A2 from A1, prompted by the lowering of Postbank's standalone
credit assessment to ba1 from baa3, within the D+ standalone
bank financial strength rating (BFSR) category. The D+ BFSR
and the Prime-1 short-term debt and deposit ratings were
confirmed and the outlook on all of Postbank's ratings is stable.
Moody's says that the lowering of Postbank's standalone credit
assessment reflects (i) the rating agency's view that there are
tail risks associated with the bank's still-large non-core
asset exposures; and (ii) Postbank's limited capital-generation
capacity and moderate capitalisation.
Moody's notes several mitigating factors that have limited the extent
of today's downgrades. These include (i) Postbank's
recurring and relatively stable core earnings capacity; (ii) the
bank's robust liquidity and funding structure; as well as (iii)
Moody's assessment of a very high probability of parental support
from Deutsche Bank following the recent domination agreement.
The downgrade of the long-term ratings reflect the lowering of
the bank's standalone credit assessment and the weakening credit
profile of Postbank's parent, Deutsche Bank, which was
downgraded to A2 deposits, stable; BFSR C-/ BCA baa2,
stable from Aa3 deposits; BFSR C+/ BCA a2 on 21 June 2012.
In addition to the above rating actions, Postbank's subordinated
debt ratings were downgraded to Baa3 from Baa2, following the lowering
of its standalone credit strength. Moody's has also upgraded several
junior subordinated debt and hybrid securities, reflecting Moody's
revised parental support assumptions. The instruments are now notched
off Postbank's baa2 adjusted standalone strength assessment in line
with Moody's notching approach for hybrid debt securities.
Today's actions on Postbank's BFSR and long-term ratings
conclude the review initiated on 15 February 2012 (see "Moody's reviews
Ratings for European Banks" - http://www.moodys.com/research/Moodys-Reviews-Ratings-for-European-Banks--PR_237914).
For a detailed list of ratings affected, refer to the end of the
press release. For additional information on bank ratings,
please refer to the webpage containing Moody's related announcements:
http://www.moodys.com/bankratings2012.
RATINGS RATIONALE --- STANDALONE CREDIT ASSESSMENT
STANDALONE FINANCIAL STRENGTH RATING MARGINALLY WEAKER AT Ba1
Moody's confirmed Postbank's D+ BFSR and lowered the mapping
of the standalone credit assessment of ba1 from baa3 previously.
This reflects Postbank's increased risk to asset quality deterioration
in the current environment due to (i) the bank's large investment
securities portfolio, including comparatively large exposures to
European peripheral sovereign debt, which equates to most of the
bank's Tier 1 capital base; (ii) the bank's still sizeable
non-core asset exposures from structured credits; and (iii)
continued asset quality deterioration from its internationally diversified
commercial real-estate exposures.
When combined with Postbank's still weak overall capital-generation
capacity and moderate capitalisation (which stood at a Tier 1 capital
ratio of 10.8% at year-end 2011), and a relatively
high leverage ratio of 34 times (measured as total assets divided by total
shareholders' equity), Moody's believes that all of
these factors render the bank vulnerable to tail risks and unexpected
losses in a stressed economic environment.
MITIGATING FACTORS
Moody's notes several mitigating factors that have limited the extent
of today's downgrade. Postbank has a strong consumer banking
franchise in Germany that continues to prove resilient, thereby
providing a certain degree of earnings stability. Moody's
anticipates that Postbank's earnings capacity from these core activities
could help to absorb potential losses that might arise from its non-core
asset exposures.
Postbank's liquidity and funding position has remained robust throughout
the euro area crisis and reflects the bank's sizeable and granular
deposit base. As a typical retail bank, Postbank's main funding
source is retail deposits and -- to a lesser extent --
corporate deposits, which together account for most of its total
liabilities. In addition, Moody's says that the bank's
large liquidity portfolio -- mainly invested in ECB-eligible
securities -- has the potential to mitigate risks emanating
from the current, challenging funding environment.
RATINGS RATIONALE --- DEBT & DEPOSIT RATINGS
The downgrade of Postbank's long-term debt and deposit ratings
to A2 from A1 reflects its lower standalone credit strength of ba1 and
the weakening credit profile of its parent, following the two-notch
downgrade of Deutsche Bank's long-term ratings to A2 from
Aa3.
Following the recent conclusion of a domination and profit & loss
transfer agreement between Postbank and its parent Deutsche Bank,
Moody's assumes a very high probability of parental support for
Postbank, which results in five notches of rating uplift.
The assumption of a very high probability of parental support is underpinned
by several aspects, including (i) Postbank's strategic role
in the group with its well entrenched domestic consumer banking franchise
which should provide for a longer-term sustainable earnings contribution;
as well as (ii) a domination and profit & loss transfer agreement,
(between Postbank and DB Finanz-Holding GmbH), which obliges
Deutsche Bank to absorb any of Postbank's losses, based on
local GAAP accounting, at least over the next five years.
RATINGS RATIONALE --- SUBORDINATED DEBT AND HYBRID
RATINGS
The downgrade of Postbank's subordinated debt to Baa3 from Baa2
reflects the bank's lower standalone credit strength of ba1 and
is one notch below Postbank's adjusted standalone credit assessment
(baa2), thereby reflecting its parent's unsupported credit
strength of baa2.
Moody's has upgraded the ratings of the bank's junior subordinated
debt and several hybrid securities, reflecting Moody's revised
parental support assumptions. These instruments are now notched
off Postbank's baa2 adjusted standalone strength rating in line
with Moody's notching approach for hybrid debt securities.
As a result, Postbank's junior subordinated debt ("Genussschein")
was upgraded to Ba2(hyb) from B1(hyb) and is now positioned three notches
below the bank's adjusted standalone credit strength, reflecting
its junior subordinated claim in liquidation and cumulative deferral features
tied to the breach of a net loss trigger (local GAAP basis, "HGB").
Moody's considers these instruments to be fully performing,
after the full write-back of principal and payment of coupons omitted
for the fiscal years 2008 and 2009. Hence, Moody's
has applied its notching approach to these instruments' ratings.
The junior subordinated debt issued by ProSecure Funding Limited Partnership
was upgraded to Ba1(hyb) from Ba2(hyb) and is now positioned two notches
below the bank's adjusted standalone credit strength, reflecting
its junior subordinated claim in liquidation and cumulative coupon skip
mechanism tied to the breach of a balance sheet loss trigger (local GAAP
basis, "HGB"). We have also attached a hybrid
(hyb) indicator to this debt in accordance with our Rating Symbols and
Definitions published in June 2012. In addition, Moody's
has relabelled this security as "junior subordinated"; it was initially
mislabelled as "subordinated" due to an internal administrative error.
The hybrid securities issued by Deutsche Postbank Funding Trust I,
II, III, and IV were upgraded to Ba2(hyb) from Ba3(hyb) and
are now rated three notches below the bank's adjusted standalone
credit strength, reflecting their deeply subordinated claim in liquidation
and non-cumulative coupon skip mechanism tied to the breach of
a balance-sheet loss trigger (local GAAP basis, "HGB").
RATIONALE FOR STABLE OUTLOOK
The stable outlooks on all the ratings captures Moody's view that the
currently foreseen risks to creditors are now reflected in these ratings.
Nevertheless, negative rating momentum could develop if conditions
deteriorate beyond the rating agency's current expectations.
WHAT COULD MOVE THE RATINGS DOWN/UP
Downwards rating pressure on Postbank's BFSR may be exerted from
depressed earnings and capital-generation capacity, as a
result of (i) asset-quality deterioration of its structured credit
and CRE exposures; (ii) unexpected structural weakness in residential
mortgage loans; and (iii) further unexpected losses from its investment
portfolio. Also, if Postbank's near-term performance
challenged the adherence to its stated financial goal of a 9.5%
Tier 1 ratio (including market risk), this would equally increase
downwards rating pressure.
Postbank's long-term ratings would be downgraded as a result
of (i) a downgrade of its own D+ BFSR; (ii) in the event of
a downgrade of Deutsche Bank's A2 long-term ratings;
or (iii) due to a re-assessment of our parental support assumptions.
With its well-entrenched retail franchise, Postbank is principally
well-positioned to regain a standalone rating in the lower investment
grade range. However, this would be subject to sufficient
evidence that the bank's de-leveraging and de-risking
strategy leads to a better-balanced asset profile with sustained
improvement in its overall risk-adjusted profitability and further
improved capitalisation, including an improvement in its quality
of capital.
Any mild upward pressure on the D+/ba1 standalone credit strength
is unlikely to lead to an upgrade of the long-term ratings given
the very high uplift factored into these ratings.
LIST OF AFFECTED RATINGS
The following ratings of Postbank were downgraded:
- Senior debt and deposits ratings to A2 from A1;
- Senior unsecured MTN rating to (P)A2 from (P)A1;
- Subordinated debt ratings to Baa3 from Baa2;
- Subordinated MTN rating to (P)Baa3 from (P)Baa2;
The following ratings of Postbank were confirmed:
- D+ BFSR, now mapping to a standalone credit assessment
of ba1 from baa3;
- Prime-1 short-term debt and deposit ratings;
The following ratings of Postbank or related entities were upgraded:
- Junior subordinated debt to Ba2(hyb) from B1(hyb);
- Junior subordinated debt issued by ProSecure Funding Limited
Partnership to Ba1(hyb) from Ba2(hyb);
- Hybrid securities issued by Deutsche Postbank Funding Trust I,
II, III, and IV to Ba2(hyb) from Ba3(hyb).
The methodologies used in this rating were Bank Financial Strength Ratings:
Global Methodology published in February 2007, and Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology published in March 2012. Please see the Credit Policy
page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following :
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
two years preceding the credit rating action. Please see the special
report "Ancillary or other permissible services provided to entities
rated by MIS's EU credit rating agencies" on the ratings disclosure
page on our website www.moodys.com for further information.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
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for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
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Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
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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.
Swen Metzler
Asst Vice President - 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 downgrades Deutsche Postbank's ratings to A2; outlook stable
