Action reflects the introduction of legislation that subordinates certain creditors to depositors in resolution from 2017
Frankfurt am Main, January 26, 2016 -- Moody's Investors Service has today taken a number of ratings actions
for 35 German banks, including several rated subsidiaries in Luxembourg
and Ireland, as well as their supported entities. In particular,
the rating agency upgraded the deposit ratings of 22 banks by up to two
notches and downgraded the senior unsecured debt ratings of seven banks
by a maximum of one notch. In addition, the bank deposit
ratings for nine banks, and senior debt ratings for 18 banks were
affirmed and the senior debt ratings for two banks were upgraded by one
notch. The outlooks on the ratings have mostly been revised to
stable.
Today's action reflects the changes in protection offered to depositors
and senior creditors, as captured by Moody's Advanced Loss Given
Failure (LGF) analysis. The changes in protection result from the
subordination of certain senior unsecured debt obligations relative to
other senior liabilities, including deposits, in Germany's
insolvency legislation which will take effect from January 2017.
The changed rank ordering in bank resolutions implies a higher severity
of loss in resolution for senior unsecured debt instruments because these
will no longer benefit from their current pari passu status with junior
deposits. Conversely, for junior deposits, the new
law implies a lower severity of loss as these will benefit from the subordination
of long-term debt instruments.
In the context of prospective legal changes, Moody's also
upgraded several German banks' short-term debt ratings because
these are now referenced to their respective long-term deposit
ratings, reflecting that the new German legislation will not subordinate
money market obligations to junior deposits. Short-term
debt and deposit ratings are therefore Prime-1 if a bank's
long-term deposit rating is A2 or higher.
Within the group of 35 banks, Moody's also took several actions
on ratings and rating inputs that were unrelated to the forthcoming change
in insolvency legislation:
Moody's upgraded Commerzbank AG's Baseline Credit Assessment (BCA)
to baa3 from ba1, reflecting the sustained improvement in the bank's
asset quality and capitalisation. In addition, the rating
agency upgraded Bayerische Landesbank's (BayernLB's) BCA to
ba1 from ba2 and its adjusted BCA to baa2 from baa3, reflecting
improvements in its asset quality, capital and profitability.
The assessment of the banks' improved financial strength in combination
with their respective revised LGF assessments have led Moody's to
affirm Commerzbank's Baa1 long-term senior debt and issuer
ratings, and to upgrade BayernLB's senior debt ratings to
A2 from A3.
Moody's also downgraded to B2 from B1 the senior subordinated debt
rating of HSH Nordbank AG, due to higher loss-given-failure
for these instruments following sizeable maturities of mostly grandfathered
subordinated debt in 2015.
The outlooks on German banks' long-term deposit ratings as
well as senior debt or issuer ratings have, in most cases,
been changed to stable. The stable rating outlooks indicate Moody's
expectation of a broadly stable liability structure, along with
stability for other ratings inputs. For a small number of banks,
negative outlooks are maintained or have been assigned. In most
cases, negative outlooks indicate respective pressure on BCAs,
or likely changes to a bank's liability structure in the next 12-18
months which may adversely affect the result of Moody's Advanced
LGF analysis. Previously, the outlooks on junior deposit
ratings were mostly positive and the outlooks for senior unsecured debt
and issuer ratings mostly negative in order to indicate the diverging
rating pressures from the prospective change in insolvency legislation.
Following the maturity of the vast majority of debt instruments benefitting
from phased-out legacy guarantees by German regional governments
(so-called grandfathered debt), Moody's has withdrawn backed
deposit and issuer ratings and selected backed debt ratings for the group
of Germany's Landesbanken. This reflects that: 1) Either
legacy guarantees by the regional governments no longer apply; or
2) these ratings have become obsolete because no respective liabilities
are outstanding any longer. For more information, please
refer to "Moody's Investors Service's Policy for Withdrawal of Credit
Ratings," available at moodys.com.
Most other ratings and ratings inputs for the banks affected by today's
rating action have been unaffected.
Please click on http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_187274
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
Moody's has also published a Special Comment entitled "Banks -
Germany, Italy: Change in Insolvency Legislation Drives German
And Italian Bank Rating Actions", providing more background on today's
rating action. Subscribers can access the report under the following
link:
http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1013718
A separate rating announcement for Deutsche Bank AG has been published
on January 25, 2016 EST time and can be found under
https://www.moodys.com/research/Moodys-upgrades-Deutsche-Bank-AGs-deposit-rating-and-downgrades-debt--PR_342809
RATINGS RATIONALE
(1) DEPOSIT RATING UPGRADES AND SENIOR DEBT RATING DOWNGRADES REFLECT
CHANGES TO GERMANY'S NEW INSOLVENCY LEGISLATION FOR BANKS
In November 2015, the German government amended the insolvency legislation
for banks to effectively subordinate certain senior unsecured debt obligations
to other senior liabilities including deposits. From January 2017
onwards, depositors will benefit from the subordination of senior
unsecured debt instruments, reducing the severity of loss for deposits.
In contrast, the subordination of senior unsecured debt instruments
will increase the loss severity for senior debt instruments, offering
lower protection for senior bondholders.
Today's rating action reflects the lower loss-given-failure
in resolution for German banks' junior deposits in its bank deposit
ratings. At the same time, it factors in the higher loss-given-failure
for German banks' unsecured bonds and notes in its senior unsecured
debt ratings.
For long-term junior deposits of most German banks, Moody's
Advanced LGF analysis results in an "extremely low" loss-given-failure,
resulting in three notches of rating uplift for junior deposits (previously
in most cases "very low" and two notches of rating uplift)
for the majority of banks. However, some deposit ratings
include less favourable results and lower uplift, because their
liability structures include low or no subordination in the form of subordinated
debt and/or senior debt instruments.
For senior unsecured debt ratings of most German banks, Moody's
Advanced LGF analysis results in a "low" or "very low"
loss-given-failure, resulting in one or two notches
of rating uplift. However, some banks have less (more) favourable
LGF results, leading to lower (higher) rating uplift for senior
debt, depending on their individual liability structures.
Moody's Advanced LGF analysis reflects the benefit of instrument
volume and subordination protecting creditors from losses in the event
of resolution. German, Irish and Luxembourg-based
banks are subject to the EU Bank Resolution and Recovery Directive (BRRD),
which Moody's considers to be an Operational Resolution Regime.
Although neither Luxembourg nor Ireland have introduced similar changes
to the priority of claims in their respective insolvency legislation,
Moody's believes that subsidiaries in these jurisdictions,
to the extent they are highly-integrated, will form part
of a common resolution perimeter with their respective parent banks.
For more information on Moody's LGF analysis and a discussion of the differences
in creditor hierarchies, see Moody's "How Resolution Frameworks
Drive Our Creditor Hierarchies" at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1003760
(in addition to the primary methodology itself).
(2) COMMERZBANK's BCA UPGRADE OFFSETS LOWER RATING UPLIFT FOR SENIOR
DEBT
The affirmation of Commerzbank's Baa1 issuer/senior unsecured debt ratings
reflects: (1) The upgrade of the bank's BCA and adjusted BCA to
baa3 from ba1; and (2) the reduced rating uplift from Moody's Advanced
LGF analysis, reflecting the changed priority of claims under Germany's
new insolvency legislation. The bank's issuer/senior unsecured
debt ratings now only benefit from one notch of LGF uplift from previously
two, owing to the group's limited volume of subordinated and senior
unsecured debt. At the same time, the rating agency upgraded
Commerzbank's deposit ratings to A2 from Baa1, now incorporating
three notches of rating uplift from the bank's adjusted BCA, reflecting
the bank's large deposit base. The outlook on all ratings
is stable.
Commerzbank's short-term debt and deposit ratings have been
upgraded to Prime-1 from Prime-2 and are now mapped from
the bank's A2 deposit rating, as money market obligations
have not been subordinated to junior deposits under the new German legislation.
Moody's also upgraded all subordinated and hybrid debt ratings by
one notch, mirroring the higher BCA.
The upgrade of Commerzbank's BCA to baa3 from ba1 reflects the bank's
improved financial profile, most notably with regards to asset quality
and capital as well as its continued sound funding profile. At
a Common Equity Tier 1 (CET1) capitalization of 10.8% on
a fully phased-in basis (12.5% on a phase-in
basis) and a leverage ratio of 4.1% as of September 2015,
Moody's considers Commerzbank's capital ratios to be adequate in
the context of its risk profile. As of September 2015, the
bank's non-performing loans accounted for 3.5%
of its gross loans. The BCA remains constrained by the bank's low
profitability and some tail risk relating to exposure concentrations to
the shipping and commercial real estate sectors.
(3) BAYERNLB'S BCA UPGRADE SUPPORTS UPGRADE OF SENIOR DEBT
The one-notch upgrade of BayernLB's senior unsecured debt
ratings to A2/Prime-1 reflects: (1) The upgrade of the bank's
BCA to ba1 from ba2 and adjusted BCA to baa2 from baa3; and (2) the
unchanged very low loss-given-failure in resolution,
which continues to result in rating uplift by two notches for this class
of debt under Germany's new insolvency legislation. The LGF
result remains underpinned by BayernLB's large volume of wholesale
funds that are eligible as senior liabilities under the new German legislation,
despite large maturities of (mostly) grandfathered debt in 2015.
Moody's also upgraded BayernLB's deposit ratings to A1 from
A3, that now benefit from three notches of LGF uplift from the bank's
adjusted BCA, because depositors benefit from the subordination
of senior unsecured debt. Moody's also upgraded the bank's subordinated
debt ratings by one notch, mirroring the higher adjusted BCA.
The upgrade of BayernLB's BCA to ba1 from ba2 reflects the bank's
improving financial profile as reflected by stronger solvency metrics,
i.e., Moody's key ratios for asset risk,
capitalisation and profitability. In particular, Moody's
expects BayernLB's CET1 and leverage ratios to remain satisfactory
as and when the bank returns the remaining EUR2.3 billion of gross
participation capital provided by the Federal State of Bavaria.
As of September 2015, BayernLB reported a fully phased-in
11.1% CET1 ratio, compared to 10.2%
in 2014.
(4) MOSTLY STABLE OUTLOOKS ON DEPOSIT AND DEBT RATINGS INDICATE MOODY'S
EXPECTATIONS OF STABLE LIABILITY STRUCTURES
Outlooks, which provide an opinion on the likely rating direction
over the medium term, have in most cases been changed to stable
for both long-term deposit and senior unsecured debt (or issuer)
ratings. Previously, the outlooks on junior deposit ratings
were mostly positive and the outlooks for senior unsecured debt and issuer
ratings mostly negative to indicate a high probability of a rating change
upon the government's final decision to subordinate senior debt
instruments to junior deposits.
The mostly stable rating outlooks generally indicate Moody's expectation
of the German banks' broadly stable liability structure, along
with stability for other ratings inputs. A stable outlook may also
indicate diverging pressures from a bank's BCA and its likely future
LGF result, which may offset each other.
For a small number of banks negative outlooks are maintained or have been
assigned. Where outlooks are negative, they either indicate:
(1) Respective pressure on BCAs; (2) likely changes to the bank's
respective liability structure in the next 12-18 months which may
adversely affect the result of Moody's Advanced LGF analysis;
or (3) expected bank-specific developments during 2016.
(5) WITHDRAWAL OF BACKED GRANDFATHERED DEBT RATINGS FOR CERTAIN LIABILITY
CLASSES
Moody's withdrawal of backed, or grandfathered, issuer and
deposit ratings and selected debt ratings for the group of German Landesbanken
reflects that: 1) Either the legacy statutory guarantees from regional
governments no longer apply; or 2) these ratings have become obsolete
because no respective liabilities are outstanding any longer.
Most prominently, this relates to backed long- and short-term
deposit ratings, backed long-term issuer ratings and short-term
debt ratings and several backed debt and debt program ratings.
Moody's has generally not withdrawn any grandfathered long-term
debt or program ratings where instruments remain outstanding. Grandfathered
debt benefits from Gewährträgerhaftung, i.e.
a statutory deficiency guarantee, which allows creditors direct
recourse to the guarantors, mainly Germany's regional governments.
Instruments that were issued by German Landesbanken before July 18,
2001 remain grandfathered until they mature; all issues after July
18, 2001 have ceased to be grandfathered.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Ratings pressure in either direction may occur due to: (1) Fundamental
developments that result in upgrades or downgrades of a bank's BCA;
(2) any change in Moody's assessment of the strength and/or availability
of parental support or cross-sector support -- the
latter is generally applicable to banks that are members of an institutional
protection scheme; (3) alterations in a bank's liability structure
that changes the expected loss severity for particular liability classes;
and/or (4) any change in Moody's assumptions regarding the likelihood
of government support being available.
Changes in the severity of loss for certain liability classes and therefore
pressure on results of Moody's Advanced LGF analysis may develop
if the individual banks' subordinated instruments increase (or decrease),
and/or if senior unsecured debt increases (or decreases) relative to their
tangible banking assets. This could result in additional (or fewer)
notches of uplift resulting from Moody's LGF analysis.
For bank-specific rating drivers, please refer to the respective
banks' latest credit opinions.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Credit Policy 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 rating action, and
whose ratings may change as a result of this 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.
The ratings of rated entities Bremer Landesbank Kreditanstalt Oldenburg
GZ, Deutsche Postbank AG and DVB Bank S.E. were not
initiated or not maintained at the request of these rated entities.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. On
this basis, Bremer Landesbank Kreditanstalt Oldenburg GZ,
Deutsche Postbank AG and DVB Bank S.E. or their agents are
considered to be non-participating entities. These rated
entities or their agents generally do not provide Moody's with information
for the purposes of their ratings process.
The relevant office for each credit rating is identified in "Debt/deal
box" on the Ratings tab in the Debt/Deal List section of each issuer/entity
page of the Website.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Katharina Barten
Senior Vice President
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 upgrades German banks' deposit ratings and downgrades senior debt ratings
