Both banks' Adjusted Baseline Credit Assessment (BCA) upgraded to a3
Frankfurt am Main, July 28, 2017 -- Moody's Investors Service (Moody's) has today taken a number of
rating actions on Landesbank Berlin AG (LBB) and its sister company Berlin
Hyp AG (Berlin Hyp) as follows:
- LBB's long-term deposit ratings were upgraded to
Aa2 from Aa3, and its A1 long-term senior unsecured debt
and issuer ratings were affirmed. Concurrently, LBB's
baseline credit assessment (BCA) was upgraded to baa2 from ba1,
and its Adjusted BCA to a3 from baa1. The long-term Counterparty
Risk Assessment (CR Assessment) was upgraded to Aa2(cr) from Aa3(cr),
and the subordinated debt rating to Baa1 from Baa2.
- Berlin Hyp's long-term deposit and senior senior
unsecured ratings were upgraded to Aa2 from A1, and the bank's
long-term senior unsecured rating to A1 from A2. Further,
Berlin Hyp's BCA was upgraded to ba1 from ba2, and its Adjusted
BCA to a3 from baa2. The long-term CR Assessment was upgraded
to Aa2(cr) from A1(cr), and the subordinated programme rating to
(P)Baa1 from (P)Baa3.
Both banks' short-term deposit ratings were affirmed at P-1,
as were their short-term CR Assessments at P-1(cr).The
outlook on LBB's and Berlin Hyp's long-term senior
ratings was changed to stable from positive.
The rating actions reflect several factors including a continued strengthening
of the credit fundamentals at both LBB and Berlin Hyp, as well as
Moody's re-assessment of the very high risk correlations
between both entities and the application of an unchanged single resolution
perimeter under Moody's Advanced Loss Given Failure (LGF) Analysis.
As key subsidiaries of their ultimate parent and consolidating entity
Erwerbsgesellschaft der S-Finanzgruppe mbH & Co. KG
(S-Erwerbsgesellschaft; unrated), LBB and Berlin Hyp
are closely linked via profit and loss transfer agreements within the
group. The resultant risk correlations between both entities,
as well as the combined capital resources within the group, informed
Moody's risk assessment at the level of the Adjusted BCA,
which was aligned at a3 for both entities, and which also includes
very high affiliate support from Sparkassen-Finanzgruppe (S-Group,
Corporate Family Rating Aa2 stable, BCA a2). Combined with
applying an unchanged single resolution perimeter at the level of S-Erwerbsgesellschaft
for Moody's Advanced LGF analysis, all ratings and CR Assessments
for LBB and Berlin Hyp are now at the same level.
For a list of all affected ratings, please refer to the end of this
press release.
RATINGS RATIONALE
UPGRADE OF THE BASELINE CREDIT ASSESSMENTS OF LBB AND BERLIN HYP
The two-notch upgrade of LBB's BCA to baa2 from ba1 takes
into account (1) the bank's improved capital metrics, reflecting
both a build-up of capital resources and de-leveraging on
the back of LBB's gradual transformation from a diversified commercial
bank into a more narrowly focused local savings bank; (2) the bank's
reduced reliance on market funding as it expanded its retail deposit franchise,
combined with a very strong liquidity cushion; and (3) a less onerous
constraint of the bank's BCA, reflecting particularly the
improved capital strength within the group. LBB's asset risk,
particularly in relation to its growing commercial real estate (CRE) exposures,
represents a key rating restraint, though.
Based on Moody's analysis of LBB's financial profile, the
standalone outcome of its BCA Scorecard is baa1. However,
the assigned baa2 BCA of LBB is constrained by the somewhat weaker credit
profile of the bank's sister company Berlin Hyp with its monoline business
model in CRE finance. Following the reorganisation of LBB,
the direct financial links between the two banks are very limited.
Nonetheless, Moody's believes that the close links within
the group, illustrated by the respective profit and loss transfers
agreements, result in meaningful risk correlation between the two
key subsidiaries of S-Erwerbsgesellschaft, and thus increases
the probability of default of the stronger entity, LBB.
The one-notch upgrade of Berlin Hyp's BCA to ba1 from ba2
takes into account (1) improved capital resources following a higher share
of earnings being retained in the bank in form of reserves, and
a concomitant increase in the leverage ratio; and 2) improved profitability,
reflecting the benign credit environment and increasing net interest income
due to a marked reduction in refinancing costs.
UPGRADE OF LBB'S AND BERLIN HYP'S ADJUSTED BCA TO a3
As key subsidiaries of their ultimate parent and consolidating entity
S-Erwerbsgesellschaft, LBB and Berlin Hyp are closely linked
via profit and loss transfer agreements within the group. The resultant
risk correlations between both entities, as well as the group's
combined capital resources, informed Moody's risk assessment
at the level of the Adjusted BCA, which was aligned at a3 for both
entities, thereby also including very high affiliate support from
S-Group. As a result, LBB's Adjusted BCA was
upgraded by one notch to a3 from baa1 while Berlin Hyp's Adjusted
BCA was upgraded by two notches to a3 from baa2.
UPGRADE / AFFIRMATION OF LBB'S AND BERLIN HYP'S LONG-TERM
RATINGS
Applying an unchanged single resolution perimeter at the level of S-Erwerbsgesellschaft
for Moody's Advanced LGF analysis results in all ratings and CR
Assessments for LBB and Berlin Hyp now being at the same level.
The ratings also include unchanged moderate government support assumptions.
For senior unsecured debt, Moody's Advanced LGF analysis resulted
in one notch of rating uplift compared to two notches previously,
reflecting lower senior unsecured volumes. For other rating classes,
the LGF analysis yielded unchanged results. Consequently,
the long-term senior unsecured rating of LBB was affirmed at A1,
while all other long-term ratings of the bank were upgraded in
line with the Adjusted BCA by one notch. For Berlin Hyp,
the long-term senior unsecured rating was upgraded by one notch
to A1, while the upgrade of all other long-term ratings of
the bank by two notches followed a similar upgrade of the Adjusted BCA.
CHANGE OF OUTLOOK TO STABLE FROM POSITIVE
Moody's changed the outlook on the long-term deposit,
senior senior unsecured, and senior unsecured debt ratings to stable
from positive, reflecting the rating agency's expectations
that credit fundamentals at LBB and Berlin Hyp will not materially change
over the 12-18 months rating outlook horizon, resulting in
a stabilisation of the combined credit profile of the group. In
addition, Moody's expects the liability structure at the consolidated
level of S-Erwerbsgesellschaft to stay broadly stable in 2017 and
2018, and therefore anticipates an unchanged result from its Advanced
LGF analysis over the next 12-18 months.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Upward pressure on LBB's and Berlin Hyp's ratings could be
triggered by stronger credit profiles of the banks in combination with
an improvement in the overall creditworthiness of S-Group.
The banks' long-term senior unsecured ratings could also
be upgraded due to higher rating uplift derived from Moody's Advanced
LGF analysis owing to increased volumes of subordinated and/or senior
unsecured obligations in S-Erwerbsgesellschaft's liability
structure.
Conversely, downward ratings pressure could develop from significant
weakening of LBB's and Berlin Hyp's financial fundamentals
to the extent that the combined credit strength of S-Erwerbsgesellschaft
was adversely affected, particularly if higher asset risks at both
banks would deplete the group's capital resources. A mild
deterioration of both entities' credit profile could be offset by
the very high sector support assumption. Further, lower creditworthiness
of S-Group and/or Moody's lowering its very high sector support
assumptions, although unlikely, could trigger downward ratings
pressure. In addition, changes in S-Erwerbsgesellschaft's
liability structure, resulting in higher loss-given-failure
in resolution and, therefore, fewer notches in rating uplift
derived from Moody's Advanced LGF analysis, could negatively
affect the ratings of both banks.
LIST OF AFFECTED RATINGS
Issuer: Berlin Hyp AG
..Upgrades:
....Baseline Credit Assessment, to ba1
from ba2
....Adjusted Baseline Credit Assessment,
to a3 from baa2
....Long-term Counterparty Risk Assessment,
to Aa2(cr) from A1(cr)
....Long-term Deposit Ratings,
to Aa2 Stable from A1 Positive
....Senior Senior Unsecured Regular Bond/Debenture,
upgraded to Aa2 Stable from A1 Positive
....Senior Senior Unsecured Medium-Term
Note Program, upgraded to (P)Aa2 from (P)A1
....Senior Unsecured Regular Bond/Debenture,
to A1 Stable from A2 Positive
....Senior Unsecured MTN Program, to
(P)A1 from (P)A2
....Subordinate MTN Program, to (P)Baa1
from (P)Baa3
..Affirmations:
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Short-term Deposit Ratings,
affirmed P-1
..Outlook Actions:
....Outlook changed to Stable from Positive
Issuer: Landesbank Berlin AG
..Upgrades:
....Baseline Credit Assessment, to baa2
from ba1
....Adjusted Baseline Credit Assessment,
to a3 from baa1
....Long-term Counterparty Risk Assessment,
to Aa2(cr) from Aa3(cr)
....Long-term Deposit Ratings,
to Aa2 Stable from Aa3 Positive
....Subordinate Regular Bond/Debenture,
to Baa1 from Baa2
..Affirmations:
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Short-term Deposit Ratings,
affirmed P-1
....Long-term Issuer Rating,
affirmed A1, outlook changed to Stable from Positive
....Senior Unsecured Regular Bond/Debenture,
affirmed A1, outlook changed to Stable from Positive
..Outlook Actions:
....Outlook changed to Stable from Positive
Issuer: Berliner Sparkasse
..Upgrades:
....Long-term Counterparty Risk Assessment,
to Aa2(cr) from Aa3(cr)
....Long-term Deposit Ratings,
to Aa2 Stable from Aa3 Positive
..Affirmations:
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Short-term Deposit Ratings,
affirmed P-1
....Long-term Issuer Rating,
affirmed A1, outlook changed to Stable from Positive
..Outlook Actions:
....Outlook changed to Stable from Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Rating 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.
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.
Goetz Thurm
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
Client Service: 44 20 7772 5454
Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
