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Rating Action:

Moody's downgrades NORD/LB and Deutsche Hypo and confirms BremerLB's debt and deposit ratings

15 Sep 2016

NORD/LB deposits A3 and debt Baa1, outlook is negative; BremerLB outlook changed to positive

Frankfurt am Main, September 15, 2016 -- Moody's Investors Service has today downgraded the ratings of Norddeutsche Landesbank GZ (NORD/LB) and its subsidiary Deutsche Hypothekenbank (Actien-Gesellschaft) (Deutsche Hypo), including the banks' long-term deposit ratings to A3 from A2, their long-term debt ratings and NORD/LB's issuer rating to Baa1 from A3, as well as both of their short-term debt and deposit ratings to Prime-2 from Prime-1. This follows Moody's downgrade of NORD/LB's Baseline Credit Assessment (BCA) to ba3 from ba2 and of its Adjusted BCA to ba1 from baa3. The rating outlooks on NORD/LB's issuer rating and on both entities' debt and deposit ratings are negative.

At the same time, the rating agency confirmed Bremer Landesbank Kreditanstalt Oldenburg GZ's (BremerLB; another subsidiary of NORD/LB) Baa3 long-term deposit ratings, the bank's Ba1 long-term debt and issuer ratings as well as its Prime-3 short-term deposit and debt ratings. This action follows the confirmation of BremerLB's b1 Adjusted BCA and of the bank's BCA at caa2.

Today's rating actions conclude the rating review for NORD/LB and its affiliates opened on 1 June 2016, and were prompted by NORD/LB and BremerLB reporting losses in the first half of 2016 -- within an extended difficult trading environment for the global shipping industry, which both banks are significantly exposed to -- and by NORD/LB's announcement that it will acquire full ownership of BremerLB within the next months.

"NORD/LB's solvency will remain vulnerable to an extension of the current period of depressed freight rates for shipping firms globally even as it has started a process of de-risking and of bolstering problem loan provisioning levels," says Bernhard Held, a Moody's Vice President.

Concurrently, Moody's also downgraded NORD/LB's and Deutsche Hypo's long-term Counterparty Risk Assessments to A3(cr) from A2(cr), their short-term Counterparty Risk Assessments to Prime-2(cr) from Prime-1(cr) and NORD/LB's subordinate debt ratings to Ba2 from Ba1. Deutsche Hypo's BCA was upgraded to ba3 from b1 while its Adjusted BCA was downgraded to ba1 from baa3.

Moody's downgraded to Caa1(hyb) from B3(hyb) and to B1(hyb) from Ba3(hyb), the ratings of the non-cumulative preference share vehicles Fuerstenberg Capital II GmbH and Charlottenburg Capital Intl. S.ar.l. & Cie, respectively. At the same time, the rating agency confirmed the B2(hyb) rating of Fuerstenberg Capital GmbH (I) and concluded the rating reviews on all three vehicles.

For a list of all affected ratings, please refer to the end of this press release.

RATINGS RATIONALE

RECENT DEVELOPMENTS WITHIN NORD/LB AND ITS AFFILIATES

With today's rating actions, Moody's has re-assessed the financial impact of the protracted downcycle in the global shipping industry and the strategic decisions taken by NORD/LB as a result of this.

A joint declaration of the current owners of BremerLB, published on 31 August, announced an agreement concerning the terms of the bank's full acquisition by NORD/LB, which will pay €180 million and transfer BremerLB's ownership stakes in three smaller subsidiaries valued at €82 million to the City of Bremen (unrated), currently a holder of a 41.2% minority interest stake in BremerLB. Moody's expects this announcement to be followed by the necessary regulatory and parliamentary approvals, and by measures of NORD/LB to ensure a tighter integration of its subsidiary into the group. Moody's believes that, as this process advances, it will reduce the risks for BremerLB's creditors and will likely result in a closer convergence of both banks' ratings over time.

In their 2016 semi-annual reports, NORD/LB and BremerLB each reported negative net income in their IFRS accounts, driven by significant risk provisioning for their shipping loan books. Both entities expect to be loss-making throughout 2016. The group has initiated an exposure reduction program, which targets the reduction of group-wide shipping exposures to €12-14 billion by year-end 2018 from €17.8 billion, which was more than twice the bank's regulatory Common Equity Tier 1 capital of €7.9 billion as of 30 June 2016. In addition to scheduled repayments partly offset by some new business activity, this exposure reduction shall, in part, be accomplished by an in-house work-out unit, as well as by capital market transactions (such as a recently announced securitisation transaction related to a €1.3 billion shipping loan portfolio). In Moody's view, current market conditions for the global shipping industry pose significant challenges to a successful execution of the group's exposure reduction plan at the cost targeted by NORD/LB, such that the bank's standalone credit risk profile remains under pressure.

DOWNGRADE OF NORD/LB'S BASELINE CREDIT ASSESSMENT AND LONG-TERM RATINGS

The downgrade of NORD/LB's BCA to ba3 from ba2 is driven by Moody's assessment that solvency risks from the group's exposures to the global shipping industry remain high, even after the bank's initiation of the exposure reduction and de-risking plan.

In Moody's view, unless freight rates recover from current levels, the risks to NORD/LB's plan include: 1) further negative credit quality migration of the currently still performing part of the shipping loan portfolio; and 2) difficulties in achieving divestment volume or price targets amidst strong supply of shipping loans or collaterals in the market; both of these would result in additional and likely significant loan loss provisioning for ship finance exposures over the coming years.

NORD/LB's long-term ratings were downgraded by one notch, reflecting the one notch downgrade of the bank's BCA, whereas the rating agency's assumptions for affiliate support, the results of its Advanced Loss Given Failure (LGF) analysis and its government support assumptions remained unchanged.

CONFIRMATION OF BREMERLB'S BCA, ADJUSTED BCA AND LONG-TERM RATINGS

The confirmation of BremerLB's caa2 BCA reflects unchanged pressure on the bank's solvency, as expressed by the €384 million loss in the first six months of 2016. The confirmation also reflects that, despite the loss, BremerLB has remained clearly above regulatory minimum capital levels with a Common Equity Tier 1 ratio of 11.0% as of 30 June 2016 (December 2015: 10.8%).

As NORD/LB progresses in its acquisition and integration of BremerLB, upward pressure may arise both on the latter's standalone BCA and on its Adjusted BCA, which incorporates the rating agency's assumptions concerning the likelihood of support provision when needed by NORD/LB and/or the institutional protection scheme of Sparkassen-Finanzgruppe (Corporate Family Rating Aa2 stable, BCA a2). The potential upward pressure on BremerLB's BCA and Adjusted BCA reflects Moody's expectation that NORD/LB will ensure BremerLB not to be in violation of regulatory minima in 2017, following the closure of the announced full acquisition. According to its semi-annual report, BremerLB targets a CET1 ratio between 11% and 11.5% for 2017, which would imply a meaningful improvement from year-end 2016 numbers, according to the rating agency's expectations.

BremerLB's long-term ratings were confirmed, reflecting the confirmation of the Adjusted BCA, an unchanged outcome of the Advanced LGF analysis performed at the group-wide level of NORD/LB and unchanged government support assumptions.

UPGRADE OF DEUTSCHE HYPO'S BCA AND DOWNGRADE OF THE BANK'S ADJUSTED BCA AND LONG-TERM RATINGS

The rating agency considers Deutsche Hypo, NORD/LB's specialised commercial real estate lender, to be "affiliate backed" by NORD/LB, resulting in its Adjusted BCA being downgraded jointly with NORD/LB's Adjusted BCA to ba1 from baa3. As a result, Deutsche Hypo's long-term debt and deposit ratings were also downgraded by one notch to Baa1 (debt) and A3 (deposits), respectively. The close linkage of Deutsche Hypo's Adjusted BCA with NORD/LB's supersedes the effect of the alignment of Deutsche Hypo's standalone financial profile with that of NORD/LB, which today led Moody's to upgrade Deutsche Hypo's BCA to ba3 from b1.

Deutsche Hypo's ba3 BCA reflects the tight integration of the entity within NORD/LB, with which it has a profit and loss transfer agreement in place, based on which it also benefits from a regulatory waiver from minimum capital requirement. The ba3 BCA also incorporates the bank's satisfactory earnings levels and good asset quality, which currently benefit from the benign operating environment for German and European commercial real estate (CRE), its core lending area. Moody's notes that Deutsche Hypo's expansion of its CRE loan portfolio in the United Kingdom (Aa1 negative) may expose it to somewhat increased credit and loan extension risk following the Brexit referendum. On the other hand, the bank's exposure to Austria's Heta Asset Resolution AG (Carinthia-state guaranteed senior unsecured debt Ca review for upgrade) now poses lower risk than prior to the second exchange offer for the creditors, which has been launched in September.

RATING ACTIONS ON NORD/LB'S AND DEUTSCHE HYPO'S HYBRID RATINGS

The downgrade to Caa1(hyb) from B3(hyb) of the rating of non-cumulative preference shares issued by Fuerstenberg Capital II GmbH and the confirmation at B2(hyb) of the rating of non-cumulative preference shares issued by Fuerstenberg Capital GmbH (I) reflects Moody's assessment that a suspension of the coupon on these two instruments, which the rating agency rates on an expected loss basis, has become highly likely. In June, both vehicles announced that they may need to suspend coupons in 2017 and possibly thereafter, based on an expected balance sheet loss of NORD/LB for the year 2016. In its semi-annual report, NORD/LB booked an accounting gain on its silent participation liabilities, most of which represent the sole asset of the Fuerstenberg bond issuance vehicles. NORD/LB's accounting gain, and its significant semi-annual loss of €406 million on an IFRS basis, indicate the chance of a suspension of the coupon payable in 2017 has further increased for both Fuerstenberg instruments.

The Pref. Stock Non-cumulative rating of Charlottenburg Capital Intl. S.ar.l. & Cie was downgraded to B1(hyb) from Ba3(hyb). Moody's expects the instrument to continue to be subject to the approach of applying LGF and additional notching to the Adjusted BCAs of Deutsche Hypo, because Moody's does not expect these instruments to be at risk of coupon suspension for 2016. The one-notch downgrade of the Adjusted BCA of Deutsche Hypo, however, also leads to a one-notch downgrade of the rating of Charlottenburg Capital Intl. S.ar.l. & Cie.

RATIONALE FOR THE OPPOSITE DIRECTION OF RATING OUTLOOKS

The long-term debt and deposit ratings of NORD/LB and Deutsche Hypo and NORD/LB's issuer rating carry a negative outlook, whereas the debt, deposit and issuer ratings of BremerLB carry a positive outlook.

The negative outlook for NORD/LB reflects the continued pressure on its BCA exerted by the continued difficult environment for global shipping markets. For Deutsche Hypo, the negative outlook expresses that Moody's expects its long-term ratings to move in close alignment with that of its parent.

The positive outlook for BremerLB indicates the potential for a closer alignment of its ratings with that of NORD/LB within the 12 to 18 months outlook horizon, following the agreed full ownership transfer to NORD/LB and a tighter integration of BremerLB.

WHAT COULD CHANGE THE RATING - UP

There is currently limited upward pressure on the ratings of NORD/LB and Deutsche Hypo, as indicated by the negative rating outlook.

Upward pressure on NORD/LB's BCA and Deutsche Hypo's Adjusted BCA may prospectively arise if the group: 1) makes tangible progress in the reduction of shipping exposure risks without incurring disproportionate losses against a background of improving freight rates; and/or 2) is able to significantly dampen the expected costs from reducing its shipping exposure from income in other business areas.

BremerLB's debt and deposit ratings, which carry a positive outlook, may become more closely aligned with the equivalent ratings of its parent NORD/LB upon a successful completion of the full takeover by the parent, combined with visible parental commitment to maintaining the capital ratios of BremerLB above the then applicable minimum regulatory levels and with steps to more closely integrate BremerLB within the overall group framework.

WHAT COULD CHANGE THE RATING - DOWN

As indicated by the negative outlook, Moody's may downgrade the long-term debt and deposit ratings of NORD/LB and Deutsche Hypo if NORD/LB's BCA is downgraded. NORD/LB's BCA may be downgraded in the case of further declining freight rates coupled with lack of progress in reducing the shipping exposure towards NORD/LB's medium-term target size of €12-14 billion.

Further, the long-term debt and deposit ratings of NORD/LB, Deutsche Hypo and BremerLB may be downgraded if, at the group level, the amount of equal-ranking or subordinated debt for an individual debt class was to decline beyond current expectations, leading to a less favorable outcome under Moody's Advanced LGF analysis.

BremerLB's ratings may be downgraded in the currently unexpected cases that the acquisition by NORD/LB cannot be executed successfully within the next half year or that NORD/LB's BCA were to decline by multiple notches.

NORD/LB's hybrid instruments Fuerstenberg Capital GmbH (I) and Fuerstenberg Capital II GmbH may be downgraded if the risk of an extended coupon suspension beyond 2017 increases materially.

LIST OF AFFECTED RATINGS

Issuer: Norddeutsche Landesbank GZ

Downgrades:

.... LT Issuer Rating (Foreign), Downgraded to Baa1 Negative from A3 Rating Under Review

....LT Bank Deposits (Local & Foreign), Downgraded to A3 Negative from A2 Rating Under Review

.... ST Bank Deposits (Local & Foreign), Downgraded to P-2 from P-1

....Senior Unsecured (Local & Foreign), Downgraded to Baa1 Negative from A3 Rating Under Review

....Subordinate (Local & Foreign), Downgraded to Ba2 from Ba1

....Subordinate MTN (Local), Downgraded to (P)Ba2 from (P)Ba1

....Senior Unsecured MTN (Local), Downgraded to (P)Baa1 from (P)A3

....Other Short Term (Local), Downgraded to (P)P-2 from (P)P-1

....ST Deposit Note/ CD Program (Local), Downgraded to P-2 from P-1

....Commercial Paper (Local & Foreign), Downgraded to P-2 from P-1

.... LT Counterparty Risk Assessment, Downgraded to A3(cr) from A2(cr)

.... ST Counterparty Risk Assessment, Downgraded to P-2(cr) from P-1(cr)

.... Adjusted Baseline Credit Assessment, Downgraded to ba1 from baa3

.... Baseline Credit Assessment, Downgraded to ba3 from ba2

Outlook Actions:

....Outlook, Changed To Negative From Rating Under Review

Issuer: Bremer Landesbank Kreditanstalt Oldenburg GZ

Confirmations:

.... LT Issuer Rating (Foreign), Confirmed at Ba1, Positive from Rating Under Review

....LT Bank Deposits (Local & Foreign), Confirmed at Baa3, Positive from Rating Under Review

... ST Banks Deposits Rating (Local & Foreign), Confirmed at P-3

....Senior Unsecured (Local), Confirmed at Ba1, Positive from Rating Under Review

...Subordinate MTN (Local), Confirmed at (P)B2

....Senior Unsecured MTN (Local), Confirmed at (P)Ba1

....Other Short Term (Local), Confirmed at (P)P-3

....Commercial Paper (Local), Confirmed at P-3

.... Adjusted Baseline Credit Assessment, Confirmed at b1

.... Baseline Credit Assessment, Confirmed at caa2

.... LT Counterparty Risk Assessment, Confirmed at Baa3(cr)

.... ST Counterparty Risk Assessment, Confirmed at P-3(cr)

Outlook Actions:

....Outlook, Changed To Positive From Rating Under Review

Issuer: Deutsche Hypothekenbank (Actien-Gesellschaft)

Downgrades:

....LT Bank Deposits (Local & Foreign), Downgraded to A3 Negative from A2 Rating Under Review

.... ST Bank Deposits (Local & Foreign), Downgraded to P-2 from P-1

....Senior Unsecured (Local), Downgraded to Baa1 Negative from A3 Rating Under Review

....Subordinate MTN (Local), Downgraded to (P)Ba2 from (P)Ba1

....Senior Unsecured MTN (Local), Downgraded to (P)Baa1 from (P)A3

....Other Short Term (Local), Downgraded to (P)P-2 from (P)P-1

....Subordinate (Local), Downgraded to Ba2 from Ba1

.... Adjusted Baseline Credit Assessment, Downgraded to ba1 from baa3

.... LT Counterparty Risk Assessment, Downgraded to A3(cr) from A2(cr)

.... ST Counterparty Risk Assessment, Downgraded to P-2(cr) from P-1(cr)

Upgrades:

.... Baseline Credit Assessment, Upgraded to ba3 from b1

Outlook Actions:

....Outlook, Changed To Negative From Rating Under Review

Issuer: Charlottenburg Capital Intl. S.ar.l. & Cie

Downgrades:

....Pref. Stock Non-cumulative (Local), Downgraded to B1 (hyb) from Ba3 (hyb)

Outlook Actions:

....Outlook, Changed To No Outlook From Rating Under Review

Issuer: Fuerstenberg Capital GmbH (I)

Confirmations:

....Pref. Stock Non-cumulative Preferred Stock (Local Currency), Confirmed at B2 (hyb)

Outlook Actions:

....Outlook, Changed To No Outlook From Rating Under Review

Issuer: Fuerstenberg Capital II GmbH

Downgrades:

....Pref. Stock Non-cumulative Preferred Stock (Local Currency), Downgraded to Caa1 (hyb) from B3 (hyb)

Outlook Actions:

....Outlook, Changed To No Outlook From Rating Under Review

Issuer: Norddeutsche Landesbank GZ, New York Branch

Downgrades:

....Senior Unsecured Commercial Paper (Local Currency), Downgraded to P-2 from P-1

.... LT Counterparty Risk Assessment, Downgraded to A3(cr) from A2(cr)

.... ST Counterparty Risk Assessment, Downgraded to P-2(cr) from P-1(cr)

Outlook Actions:

....Outlook, Changed To Negative From Rating Under Review

PRINICIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in January 2016. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Items color coded in purple in this Press Release relate to unsolicited ratings for a rated entity which is non-participating.

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.

Bernhard Held
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

No Related Data.
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Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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