Concludes review initiated on 1 July 2011
Frankfurt am Main, November 16, 2011 -- Moody's Investors Service has today taken rating actions on the senior
debt and deposit ratings of 12 German public-sector banks (primarily
Landesbanken), closing the review that was initiated on 1 July 2011.
The rating actions reflect Moody's assumption that there is now
a lower likelihood that these banks would receive external support,
if required.
The key drivers behind Moody's reduced support assumptions are
(i) that future government (or systemic) support for German public-sector
banks has become less certain, partly owing to the new bank resolution
regime that enables the government to impose losses on creditors outside
of liquidation; and
(ii) the restrictions on the provision of support, due to strict
conditions set by the European Commission (EC).
Even after today's downgrades, the senior ratings of Landesbanken
continue to incorporate support assumptions that are very high because
Landesbanken are ultimately government-owned, either directly
or indirectly. Following the reassessment of support assumptions
support uplift of two to five notches is now incorporated in the banks'
long-term ratings (from a total of four to eight previously).
The rating actions listed below are discussed in more detail in our Special
Comment "Moody's Reduces Support Assumptions for German Landesbanken",
published today.
Today's rating actions do not reflect changes in the standalone
credit assessments of the 12 banks. Rating announcements pertaining
to the standalone credit assessments of the banks were reported separately
during the review period, as appropriate. Neither are today's
rating actions linked to the evolving euro-area sovereign debt
crisis. Moody's standalone credit assessments for German
public-sector banks already reflect potential losses on exposures
to stressed euro-area sovereigns, although the rating agency
closely monitors the credit implications of the ongoing euro-area
crisis for these banks.
Moody's had previously commented on the issue of weakening support
in various publications, see "Assessing Post-Crisis
Support for German Banks", 15 April 2010, "German
Bank Restructuring Act Shapes Post-Crisis Regulation, But
Is Negative for Debtholders", 6 December 2010, "German
Landesbanken: Moody's to Reassess Support Assumptions",
10 May 2011, "Moody's reviews ratings of German Landesbanken",
1 July 2011.
In summary, Moody's has:
-- Confirmed the ratings of one bank, Landesbank Berlin
AG (LBB, at the A1 level);
-- Downgraded by one notch the rating for one bank,
DekaBank Deutsche Girozentrale (DekaBank, to Aa3 from Aa2);
-- Downgraded by two notches the ratings for three banks,
Landesbank Hessen-Thueringen GZ (Helaba, to A1 from Aa2),
Landesbank Saar (SaarLB, to A3 from A1) and HSH Nordbank AG (HSH,
to Baa2 from A3);
-- Downgraded by three notches the ratings for six banks,
Bayerische Landesbank (BayernLB, to Baa1 from A1), Deutsche
Hypothekenbank AG (Deutsche Hypo, to Baa1 from A1), Landesbank
Baden-Wuerttemberg (LBBW, to A2 from Aa2), Norddeutsche
Landesbank GZ (NORD/LB, to A2 from Aa2), Norddeutsche Landesbank
Luxembourg S.A. (NLBL, to A3 from Aa3) and Bremer
Landesbank Kreditanstalt Oldenburg GZ (BremerLB, to A2 from Aa2);
-- Extended the review, direction uncertain,
of the ratings of one bank, WestLB AG (WestLB, at the A3 level).
Moody's has also downgraded to Prime-2 the ratings for six
banks, namely BayernLB, Deutsche Hypo, HSH, NLBL,
SaarLB, and WestLB. The Prime-1 short-term
ratings of the other banks were unaffected. The agency also downgraded
selected subordinated debt and hybrid instruments as listed in the separate
attachment.
A detailed summary of the rating actions and the current levels of support
for the Landesbanken is available here:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_137453
RATINGS RATIONALE
-- Reduced political will to support future bank bailouts:
Government (or systemic) support for German public-sector banks
has become less certain, partly owing to the new bank resolution
regime that enables the government to impose losses on creditors outside
of liquidation. Support factored into the ratings of German banks
rose to exceptionally high levels during the prolonged period of market
disruption, consistent with the extraordinary actions taken by authorities
to support banks. With authorities now taking steps that reduce
the probability, predictability and likely extent of future support,
Moody's has removed some of this extraordinary support, which
it always considered temporary.
-- Restrictions to support due to strict EC conditions:
The European Commission, whose approval for some forms of support
is required under EU state aid regulations, has set strict conditions
that constrain the ability of governments (including regional and local
governments) to support banks. This has become an obstacle for
some Landesbanken to obtain support, particularly for those banks
that required support more than once.
-- LANDESBANKEN SENIOR RATINGS STILL INCORPORATE SUPPORT
ASSUMPTIONS THAT ARE VERY HIGH
Moody's view that German public-sector banks continue to
benefit from a very high probability of external support is driven by
two important factors:
(i) Systemic importance of German public-sector banks: The
Landesbanken, their subsidiaries and DekaBank belong to the broader
public-sector banking group, which accounts for more than
one third of total lending and deposits in the German system; the
public-sector banks are thus a cornerstone of Germany's financial
system and its economy.
(ii) Direct and indirect government influence: Ownership and control
of German public-sector banks relates ultimately to government
entities. The government's influence underpins a high probability
of support.
The long-term debt ratings for 11 of the banks affected by today's
actions are now positioned two to five notches above their standalone
credit assessments (except for WestLB's ratings, which benefit
from eight notches of support-driven uplift, but remain under
review, direction uncertain).
-- LOWER SUPPORT ASSUMPTIONS: TWO GROUPS OF LANDESBANKEN
During the crisis, support providers did not act alone, but
rather "in concert". Support was generally coordinated
among savings banks, German federal states and, in some cases,
the central government. The actual burden sharing of individual
support packages was subject to internal, multilateral negotiations.
Previously it was assumed that support would be offered largely independently
by the multiple sources of support available to Landesbanken, namely
parental, cooperative, regional and local government (RLG),
and systemic support. To reflect this change, going forward,
Moody's analyses external support for German Landesbanken in a unified
way, rather than sequentially.
The revised approach to assessing external support for Landesbanken is
consistent with Moody's joint default analysis (JDA) and has not
affected the outcome of the ratings review. Broadly speaking,
the Landesbanken fall into two groups.
(i) Landesbanken likely to benefit directly from multiple support sources:
Most Landesbanken groups will likely receive support directly from multiple
sources, if needed. The group includes Helaba (long-term
rating A1, standalone credit assessment C-/Baa2, support-driven
rating uplift four notches ), LBBW (A2, D+/Baa3,
support-driven rating uplift four notches), NORD/LB (A2,
D+/Baa3, support-driven rating uplift four notches),
SaarLB (A3, D/Ba2, support-driven rating uplift five
notches), BayernLB (Baa1, D-/Ba3, support-driven
rating uplift five notches), HSH (Baa2, E+/B1,
support-driven rating uplift five notches) and WestLB (A3,
E+/B2, ratings under review -- direction uncertain,
support-driven rating uplift eight notches).
(ii) Landesbanken likely to benefit indirectly from multiple support sources,
through the owners:
This smaller group, which comprises the banks wholly-owned
by savings banks (LBB and DekaBank) and the rated NORD/LB subsidiaries,
also benefits from multiple support sources. Moody's expects
that cooperative, RLG and systemic support would be provided primarily
through their owners, indirectly benefiting the entities in this
group.
The group includes DekaBank (long-term rating Aa3, standalone
credit assessment C/A3, three notches of support uplift),
LBB (A1, D+/Baa3, support-driven rating uplift
five notches), BremerLB (A2, C-/Baa1, support-driven
rating uplift two notches), NLBL (A3, D+/Baa3,
support-driven rating uplift three notches) and Deutsche Hypo (Baa1,
D/Ba2, support-driven rating uplift four notches).
-- FOCUS OF THE EXTENDED REVIEW FOR WestLB
WestLB (A3, E+/B2, support-driven rating uplift
eight notches) is an exception, as its ratings remain on review,
direction uncertain. The bank's evolving break-up
and planned unwinding may entail the sale of divisions to third parties
and / or transfer into a yet to be established servicer bank (Verbundbank)
for savings banks before remaining assets and liabilities are transferred
to the bank's dedicated wind-down vehicle, EAA Erste
Abwicklungsanstalt (rated Aa1 stable). The extended review will
focus on (i) the outcome of the EC's pending state-aid ruling;
and (ii) further clarity on the breakup and distribution of existing liabilities.
The agency notes that the transition risk for WestLB's ratings,
in either direction, remains high.
RATING RATIONALE FOR SHORT TERM RATINGS AND SUBORDINATED DEBT
The downgrades of the short-term ratings for six banks from Prime-1
to Prime-2 follow Moody's approach of positioning the short-term
ratings for banks with long-term debt ratings of A3 or lower outside
of Prime-1, whenever these long-term ratings strongly
rely on support-driven uplift (rather than a banks' standalone
credit profile).
In line with Moody's hybrid bank rating methodology, the ratings
for subordinated instruments of Landesbanken are based on their adjusted
baseline credit assessments, which in most cases incorporate two
notches of support. The outlooks assigned to subordinated debt
and hybrid ratings that are notched off the adjusted baseline credit assessment
follow the outlooks on the respective standalone credit assessments.
WHAT COULD CHANGE THE RATINGS
All of the ratings are subject to changes of these banks' standalone
financial strength ratings. Debt ratings that continue to benefit
from very high support remain sensitive to any further changes in Moody's
support assumptions. Please refer to www.moodys.com
for a more detailed discussion of each institution's credit profile.
PRINCIPAL METHODOLOGIES
The methodologies used in these rating actions were Bank Financial Strength
Ratings: Global Methodology published in February 2007, Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology published in March 2007, and Moody's Guidelines for
Rating Bank Hybrid Securities and Subordinated Debt published in November
2009 . 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.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
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
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
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
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
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.
Katharina Barten
VP - Senior Credit Officer
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 takes rating actions on 12 German Landesbanken
