Commerzbank's C- BFSR affirmed, outlook negative; Eurohypo's BFSR downgraded to D-, outlook negative
Frankfurt am Main, February 17, 2011 -- Moody's Investors Service has today placed the senior debt and deposit
ratings of several Commerzbank group entities on review for possible downgrade,
specifically: (i) Commerzbank AG's Aa3 senior debt and deposit
ratings; (ii) the Aa3 senior debt and deposit ratings of Commerzbank
Europe (Ireland); (iii) Eurohypo AG's A1 senior debt and deposit
ratings; and (iv) Deutsche Schiffsbank's A2 senior debt and
deposit ratings.
Concurrently, the C- BFSR of Commerzbank AG has been affirmed;
however, the outlook remains negative and the rating agency will,
as part of the review, reassess the current Baa1 stand-alone
mapping, which could move down to Baa2. The BFSR of Eurohypo
AG has been downgraded to D- from D, with a negative outlook.
Additionally, Moody's has (i) affirmed the Prime-1
short-term ratings for Commerzbank AG, Commerzbank Europe
(Ireland) and Eurohypo AG; and (ii) placed Deutsche Schiffsbank's
Prime-1 short-term rating on review for possible downgrade.
Moody's noted that the transition risk of the senior debt or deposit
ratings for Commerzbank and its subsidiaries is likely to be limited to
no more than two notches. The review is expected to be completed
in the short-term.
For a detailed list of ratings affected please refer to the end of the
press release.
RATINGS RATIONALE
Moody's says that these rating reviews reflect (i) a reassessment
of Eurohypo AG's risk profile, which resulted in today's
downgrade of its stand-alone financial strength rating (BFSR) to
D- from D; and (ii) Moody's view that a reassessment
is warranted of the support uplift currently factored into the long-term
ratings.
The downgrade of Eurohypo's BFSR to D- is driven by the bank's
weak performance and its deteriorating asset quality (which remains below
earlier expectations). Moody's reassessment of the support
uplift is due to concerns that the extraordinary level of support provided
during the financial crisis will not likely be repeated, if it is
required again in the future. This has led Moody's to place
the long-term debt ratings of the Commerzbank Group entities on
review for possible downgrade. Commerzbank Europe (Ireland)'s
debt ratings are also subject to Moody's review for downgrade as
that subsidiary's ratings are aligned with those of the parent bank.
COMMERZBANK'S C- BFSR (Baa1) WITH NEGATIVE OUTLOOK REMAINS
UNDER PRESSURE
Moody's affirmation of Commerzbank's C- BFSR reflects
(i) the solid progress that the group has made in de-risking and
downsizing the balance sheet; (ii) the gradual recovery of its profitability,
(although this remains at weak levels within the C- rating category);
and (iii) the improved regulatory and economic capital levels.
"In spite of this progress, in our view the group continues
to face various challenges. Adverse factors include (i) the substantial
losses contributed by Eurohypo and its poor asset quality; (ii) Commerzbank
group's weak quality of earnings and modest profitability outlook
as important steps of its restructuring plan and the Dresdner integration
have yet to be accomplished; and (iii) Commerzbank's need to
address its weak quality of capital, and to repay hybrid instruments
provided by the government during the crisis," explains Katharina
Barten, a Moody's Vice President and Senior Credit Officer.
Moody's expects that Commerzbank's repayment of its hybrid
capital will likely constrain the Tier 1 ratio at a level below or close
to 10%.
"As fragility in the markets persists and event risk is relatively
high, the combination of these factors result in continued uncertainty
for the development of the group's stand-alone credit profile,
warranting the continued negative outlook on this rating,"
adds Ms Barten.
FOCUS ON COMMERZBANK'S L/T RATING EXTRAORDINARY SUPPORT ASSUMPTIONS
The ratings review will focus on the support uplift assumptions factored
into the long-term ratings of Commerzbank, following Moody's
concerns that the extraordinary level of support provided during the financial
crisis is not likely to be repeated, if required again in the future.
Before the financial crisis -- and before the merger with
Dresdner Bank -- Commerzbank's long-term debt
and deposit ratings benefited from only two notches of rating uplift,
while the current ratings still incorporate four notches of uplift due
to systemic support. As part of its review, Moody's
will also assess the unlimited capital increase option under Germany's
new reorganisation act, as well as the impact of a government roadmap
for the repayment of state aid provided to Commerzbank during the financial
crisis.
EUROHYPO'S BFSR DOWNGRADE TO D- REFLECTS POOR ASSET QUALITY
AND PERFORMANCE
The downgrade of Eurohypo's BFSR to D- (which now maps into
a Ba3 rating on Moody's long-term rating scale), reflects
the poor performance and slow progress of Germany's largest commercial
real-estate lender to rebuild some of its earlier financial strength
in persistently challenging market conditions. The D- BFSR
further takes into account (i) the increased credit and market risk and
the resulting high earnings volatility of Eurohypo's public-sector
finance business; and (ii) Moody's expectation that it will
take the bank longer than previously anticipated to rebuild an independent
funding franchise.
The negative outlook on the D- BFSR reflects Moody's view
that Eurohypo's public-sector finance franchise is impaired
and vulnerable to market shocks and that its commercial real-estate
franchise remains very weak.
REVIEW OF EUROHYPO'S A1 L/T RATINGS REFLECTS BFSR DOWNGRADE,
WEAKENING SYSTEMIC SUPPORT
The review for possible downgrade of Eurohypo's A1 long-term
debt ratings reflects the downgrade of the BFSR to D- and,
additionally, Moody's view that systemic support for the bank
is likely to weaken in the medium term. Over the next several years
the agency sees limited potential for upward rating migration for the
BFSR of Eurohypo, even at the lower D- level. This
in turn limits the prospects that an improvement of its financial strengths
(and thus the BFSR) could gradually offset weakening systemic support
over the next two to three years.
As a result of Eurohypo's continued dependence on Commerzbank,
in particular on substantial levels of intra-group funding,
Moody's will also review the parental support (currently only one
notch) as it may continue to be available for longer than previously anticipated.
A higher degree of parental support could off-set some of the pressure
of weakening systemic support, even though Eurohypo has to be divested
by the end of 2014, according to the compensation measures that
were agreed with the European Commission. The aspect of continued
parental support will be a key consideration in the rating level that
will be assigned, post-review.
REVIEW OF COMMERZBANK EUROPE IRELAND'S L/T RATINGS BASED ON PARENT
RATING REVIEW
The affirmation of the C- BFSR and the review for possible downgrade
of the Aa3 senior debt and deposit ratings of Commerzbank Europe (Ireland)
mirror the rating action on Commerzbank's ratings, following
Moody's approach of maintaining the same ratings for the parent
bank and subsidiary. This is based on the Irish subsidiary's
close integration into and support from the group.
Important considerations supporting the alignment of the subsidiary's
BFSR and long-term ratings with those of Commerzbank are (i) the
continued commitment of the parent to support the subsidiary based on
the existing Letter of Comfort; (ii) the legal obligation of Commerzbank
as majority stakeholder based on the "unlimited company" status of the
Irish bank, which requires the parent to make good any shortfalls
of funds in liquidation; and (iii) the small size of Commerzbank
Europe (Ireland) compared with the size of the group, which means
the parent bank can support its Irish subsidiary with relative ease.
REVIEW OF DEUTSCHE SCHIFFSBANK'S L/T RATINGS BASED ON PARENT RATING
RVEVIEW
Deutsche Schiffsbank's A2 senior debt and deposit ratings currently
benefit from Moody's parent support assumptions, whereby the
parent bank's exact stand-alone financial strength is the
relevant input factor for the review. If Commerzbank's C-
BFSR were to be mapped to the lower Baa2 level, Deutsche Schiffsbank's
senior debt ratings could also be affected. Moody's will,
at the same time, revisit the systemic support assumptions for Deutsche
Schiffsbank.
Given the potential pressure on the current A2 senior debt and deposit
ratings, a review of the Prime-1 short-term rating
of Deutsche Schiffsbank also forms part of the group ratings review.
DETAILED LIST OF RATING ACTIONS
(1) Commerzbank AG
- BFSR: affirmed at C-, outlook negative
- Aa3 senior debt and deposit ratings: placed on review for
possible downgrade
- A1 subordinated debt ratings: remain on review for possible
downgrade
- (P)A2 program rating for senior subordinated Tier III instruments:
placed on review for possible downgrade
- Prime-1 short-term rating: affirmed
Although Commerzbank's C- BFSR has been affirmed today,
the outlook remains negative and the rating agency will, as part
of the review, reassess the current Baa1 stand-alone mapping,
which could move down to Baa2.
(2) Eurohypo AG
- BFSR: downgraded to D- (Ba3) from D (Ba2),
outlook negative
- A1 senior debt and deposit ratings: placed on review for
possible downgrade
- A2 subordinated debt ratings: remain on review for possible
downgrade
- (P)Ba2 rating for senior subordinated Tier III instruments:
placed on review for possible downgrade
- Prime-1 short-term rating: affirmed
Eurohypo's D- BFSR with a negative outlook now maps to Ba3
on Moody's long-term rating scale.
(3) Commerzbank Europe (Ireland)
- BFSR: affirmed at C-, outlook negative
- Aa3 senior debt and deposit ratings: placed on review for
possible downgrade
- A1 subordinated debt ratings: remain on review for possible
downgrade
- Prime-1 short-term rating: affirmed
The rating actions on Commerzbank Europe (Ireland) mirror those on Commerzbank's
ratings, as Moody's generally aligns all ratings of the Irish
subsidiary with those of Commerzbank, owing to the subsidiary's
close integration in the group.
(4) Deutsche Schiffsbank AG
- BFSR: D (Ba2), not affected
- A2 senior debt and deposit ratings: placed on review for
possible downgrade
- A3 subordinated debt ratings: remain on review for possible
downgrade
- Prime-1 short-term rating: placed on review
for possible downgrade
The BFSR of Deutsche Schiffsbank, currently at D and mapping into
a Ba2 on Moody's long-term rating scale, remains unaffected
by today's rating action.
Commerzbank's and Eurohypo's ratings for senior subordinated
debt of A1 and A2 respectively remain on review for possible downgrade.
Please also refer to Moody's press release dated 16 December 2010,
on our review of senior subordinated debt across the German banking system.
The A2 rating for Commerzbank's Tier III instruments and the Baa2
rating for Eurohypo's Tier III instruments have been placed on review
for possible downgrade, as these instruments are notched from the
adjusted issuer stand-alone ratings.
Aaa rated bonds of Commerzbank AG that benefit from a guaranty of the
Financial Market Stabilisation Agency (also known as "SoFFin")
are unaffected by today's rating action.
Equally, the rating of the group's various hybrid instruments,
which are rated based on Moody's expected-loss approach,
are also unaffected by today's rating action.
Moody's will comment separately on any potential impact on the various
covered bonds issued by Commerzbank Group entities.
PRINCIPAL METHODOLOGIES AND LAST RATINGS ACTIONS
The principal 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 2007.
Moody's last rating action on Commerzbank AG and Eurohypo was on
16 Dec 2010 when the rating agency placed German banks' subordinated debt
on review for downgrade.
Moody's last rating action on Deutsche Schiffsbank was on 03 Jun
2009 when the rating agency downgraded Deutsche Schiffsbank's BFSR to
D from C+.
Moody's last rating action on Commerzbank Europe (Ireland) was on
02 Mar 2009 when the rating agency downgraded Commerzbank group BFSRs
and hybrids ratings.
Domiciled in Frankfurt, Germany, Commerzbank reported total
assets of EUR848 billion as at 30 September 2010 and a pre-tax
profit for the 9 months of EUR1.1 billion.
Headquartered in Eschborn, Germany, Eurohypo is a fully owned
subsidiary of Commerzbank. Based on half-year results as
of June 2010, Eurohypo reported total assets of EUR257 billion and
a pre-tax loss for the 6 months of EUR215 million.
Headquartered in Hamburg and Bremen, Deutsche Schiffsbank is a majority
owned subsidiary of Commerzbank. Based on half-year results
as of June 2010, Deutsche Schiffsbank reported total assets of €17.5
billion and a pre-tax loss for the 6 months of EUR20 million.
Headquartered in Dublin, Ireland, Commerzbank Europe (Ireland)
is a majority owned subsidiary of Commerzbank. At the end of December
2009, the bank had total assets, according to Irish GAAP,
of EUR2.3 billion and reported a pre-tax profit of EUR9
million for 2009.
Frankfurt am Main
Katharina Barten
VP - Senior Credit Officer
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
An der Welle 5
Frankfurt am Main 60322
Germany
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Moody's reviews Commerzbank Group ratings for possible downgrade
