Rating upgrade extends to subsidiaries; NORD/LB's hybrid securities downgraded
Frankfurt am Main, January 09, 2020 -- Moody's Investors Service (Moody's) has today upgraded by two notches
the long-term ratings of Norddeutsche Landesbank GZ (NORD/LB) and
its rated subsidiaries, including Deutsche Hypothekenbank (Actien-Gesellschaft)
(Deutsche Hypo) and NORD/LB Luxembourg S.A. Covered Bond
Bank (NORD/LB CBB). Specifically, NORD/LB's long-term
senior unsecured debt and deposit ratings were upgraded to A3 from Baa2,
the outlook changed to stable from ratings under review. Moody's
also upgraded NORD/LB's Baseline Credit Assessment (BCA) to ba3
from b2. Further, Moody's has affirmed the P-2 short-term
ratings of NORD/LB and its rated subsidiaries, as applicable,
and downgraded NORD/LB's hybrid securities which are issued through
the funding vehicles Fuerstenberg Capital Erste GmbH and Fuerstenberg
Capital II GmbH, to Caa3(hyb) from Caa1(hyb).
The rating actions follow NORD/LB's announcement on 23 December
2019, stating that the capital strengthening of combined €3.6
billion from its public sector owners was successfully completed.
Today's rating actions conclude the rating review for NORD/LB and its
subsidiaries, opened on 18 December 2018.
Moody's Aa1 backed ratings for instruments that benefit from the grandfathering
of statutory guarantees remain unaffected by today's rating action.
For a list of all affected ratings, please refer to the end of this
press release.
RATINGS RATIONALE
- UPGRADE OF NORD/LB'S BASELINE CREDIT ASSESSMENT REFLECTS
IMPROVED SOLVENCY
The upgrade of NORD/LB's BCA to ba3 from b2 reflects the strengthened
standalone credit profile resulting from the group's materially
improved solvency. The capital injection completes the bank's
key milestones that are required to continue its path of de-risking
the bank through exiting ship finance and re-sizing its activities
in accordance with the medium-term plan, termed NORD/LB 2024.
Moody's assessment of the execution risk during NORD/LB's
ambitious medium-term transition plan and resulting uncertainty
regarding its success presently limits the standalone creditworthiness
at the ba3 level. The rating agency believes that the bank will
face challenges protecting its franchise and restoring a moderate level
of profitability during the extended period that management works to implement
its transition plans.
With a Common Equity Tier 1 (CET1) ratio moving to more than 14.0%
by year-end 2019 and a coverage ratio of around 65% of non-performing
loans, Moody's considers the bank to be appropriately capitalized,
including the guarantee, to enable it to further reduce its remaining
exposure to ship loans. Disposals of ship loans have already helped
to improve the bank's asset quality and reduce risks on NORD/LB's
balance sheet. As of 30 September 2019, NORD/LB's ship
exposure declined to €6.1 billion, compared with €10.3
billion at the end of 2018 and €12.1 billion at the end of
2017.
The transformation of NORD/LB will lead to a significantly re-sized
and de-risked balance sheet. Until end-2024,
NORD/LB is committed to shrink its assets to around €95 billion,
compared with €146.9 billion at 30 September 2019.
The bank's transformation program also foresees a significant lowering
of its operating expenses, including the number of employees to
2,800-3,000 by 2024 from 5,670 at year-end
2018.
As part of today's rating action, Moody's also upgraded
the BCA of NORD/LB's subsidiary Deutsche Hypo to ba3 from b2.
While Deutsche Hypo's financial strength is better than that of
its parent, it remains capped at the level of NORD/LB, reflecting
the close interlinkages between the two banks, including a regulatory
capital waiver and profit and loss transfer agreement. Further,
NORD/LB CBB's BCA was upgraded to ba3 from b2 and remains aligned
with that of NORD/LB, because the rating agency considers the Luxembourg-based
bank a highly integrated and harmonised subsidiary.
- UPGRADE OF THE ADJUSTED BASELINE CREDIT ASSESSMENT
Moody's recognizes the significant support provided through Sparkassen-Finanzgruppe
(Corporate Family Rating Aa2 negative, BCA a2) to strengthen NORD/LB's
capital, which allows the bank to de-risk and transform.
Sparkassen-Finanzgruppe injected a combined €1.1 billion,
alongside NORD/LB's other owners, the federal states of Lower
Saxony and Saxony-Anhalt (Aa1 stable). The upgrade of NORD/LB's
Adjusted BCA to ba1 from ba3 reflects Moody's unchanged high affiliate
support assumption, which provides two notches of rating uplift
from NORD/LB's BCA, lifting its Adjusted BCA to ba1.
- UPGRADE OF THE LONG-TERM RATINGS
The upgrade of NORD/LB's and rated subsidiaries' long-term
senior unsecured debt and deposit ratings to A3 from Baa2 reflect the
two-notch upgrade of NORD/LB's BCA and Adjusted BCA,
as well as the unchanged result from Moody's Advanced Loss Given Failure
(LGF) analysis. NORD/LB has significant outstanding volumes of
junior senior unsecured debt and other instruments designed to absorb
losses in resolution. In combination with a moderate volume of
senior unsecured bonds in issuance the rating agency assesses the loss-given-failure
for senior unsecured debt and deposits to be extremely low, resulting
in three notches of rating uplift for these liability classes.
As a member bank of Sparkassen-Finanzgruppe, Germany's
largest systemically important banking group, Moody's continues
to assume a moderate probability of government support, leading
to one notch of government support uplift in the senior unsecured debt
and deposit ratings of NORD/LB and its rated subsidiaries.
- RATIONALE FOR THE STABLE OUTLOOK
The stable outlook on NORD/LB's and rated subsidiaries' long-term
senior unsecured and deposit ratings reflects Moody's view that
the management needs to develop a track record on its path towards a more
balanced risk profile, thereby reducing presently-meaningful
execution risk and raising the credibility of its profitability ambitions
before further rating upgrades could be warranted.
- DOWNGRADE OF NORD/LB'S HYBRID SECURITIES RATINGS
The downgrade of NORD/LB's non-cumulative preference shares to
Caa3(hyb) from Caa1(hyb) reflects the instruments unchanged status as
an impaired security and increased uncertainly around future potential
recovery. The Caa3(hyb) rating considers both an expected-loss
rating approach for rating the hybrid instruments as well as the agency's
LGF approach from NORD/LB's Adjusted BCA. The Caa3(hyb) rating
balances Moody's view of very high expected losses associated with further
coupon skips and additional write-downs with a still-possible
upside related to a swift and successful turnaround of the bank resulting
in a resumption of coupon payments and principle write-backs.
Moody's believes these instruments face very high risks, including
the potential participation in local GAAP losses for financial years 2019
and beyond, which are burdened by restructuring charges and NORD/LB's
possible decision to call back these instruments for reasons relating
to their gradual de-recognition as regulatory capital. Moody's
believes that NORD/LB's improved capitalization reduces the bank's
dependence on these instruments as a supplement to regulatory capital.
WHAT COULD CHANGE THE RATINGS UP/DOWN
A rating upgrade for NORD/LB's and its rated subsidiaries' deposit and
senior unsecured debt ratings, where applicable, depends on
an upgrade of the banks' BCA.
A BCA upgrade will likely be prompted when NORD/LB successfully executes
the planned measures under its transformation program until 2024,
leading to (1) a significantly smaller and de-risked balance sheet,
including the disposal of remaining loans relating to ship finance;
(2) a maintained or even increased capitalization; and (3) a restored
moderate level of profitability.
Moody's may downgrade NORD/LB's and its rated subsidiaries' ratings if
(1) NORD/LB's BCA or Adjusted BCA are downgraded; or (2) a shift
in NORD/LB's liability structure results in decreasing volumes of
bail-in-able debt instruments, which increases the
expected loss under the agency's Advanced LGF analysis.
NORD/LB's BCA could be downgraded if (1) the bank faces challenges in
maintaining its franchise during the extended phase of transformation;
or (2) its capital significantly declines below the improved levels following
the capital injection.
In addition, NORD/LB's non-cumulative preference shares could
be upgraded if there is a resumption of coupon payments and principle
write-backs. Conversely, the preference shares could
be downgraded if redeemed at current book value.
LIST OF AFFECTED RATINGS
Issuer: Norddeutsche Landesbank GZ
..Upgrades:
....Long-term Counterparty Risk Ratings,
upgraded to A3 from Baa2
....Long-term Bank Deposits,
upgraded to A3 from Baa2, outlook changed to Stable from Ratings
under Review
....Long-term Counterparty Risk Assessment,
upgraded to A3(cr) from Baa2(cr)
....Long-term Issuer Rating,
upgraded to A3 from Baa2, outlook changed to Stable from Ratings
under Review
....Baseline Credit Assessment, upgraded
to ba3 from b2
....Adjusted Baseline Credit Assessment,
upgraded to ba1 from ba3
....Senior Unsecured Regular Bond/Debenture,
upgraded to A3 from Baa2, outlook changed to Stable from Ratings
under Review
....Senior Unsecured Medium-Term Note
Program, upgraded to (P)A3 from (P)Baa2
....Junior Senior Unsecured Regular Bond/Debenture,
upgraded to Baa2 from Ba1
....Junior Senior Unsecured Medium-Term
Note Program, upgraded to (P)Baa2 from (P)Ba1
....Subordinate Regular Bond/Debenture,
upgraded to Ba2 from B1
....Subordinate Medium-Term Note Program,
upgraded to (P)Ba2 from (P)B1
..Affirmations:
....Short-term Counterparty Risk Ratings,
affirmed P-2
....Short-term Bank Deposits,
affirmed P-2
....Short-term Counterparty Risk Assessment,
affirmed P-2(cr)
....Commercial Paper, affirmed P-2
....Other Short Term, affirmed (P)P-2
..Outlook Action:
....Outlook changed to Stable from Rating
under Review
Issuer: Bremer Landesbank Kreditanstalt Oldenburg GZ
..Upgrades:
....Junior Senior Unsecured Regular Bond/Debenture,
upgraded to Baa2 from Ba1
..Outlook Action:
....Outlook changed to Stable from Rating
under Review
Issuer: Norddeutsche Landesbank GZ, New York Branch
..Upgrades:
....Long-term Counterparty Risk Ratings,
upgraded to A3 from Baa2
....Long-term Counterparty Risk Assessment,
upgraded to A3(cr) from Baa2(cr)
..Affirmations:
....Short-term Counterparty Risk Ratings,
affirmed P-2
....Short-term Counterparty Risk Assessment,
affirmed P-2(cr)
....Commercial Paper, affirmed P-2
..Outlook Action:
....Outlook changed to No Outlook from Rating
under Review
Issuer: Fuerstenberg Capital Erste GmbH
..Downgrade:
....Preferred Stock Non-cumulative,
downgraded to Caa3(hyb) from Caa1(hyb)
..Outlook Action:
....Outlook changed to No Outlook from Ratings
under Review
Issuer: Fuerstenberg Capital II GmbH
..Downgrade:
....Preferred Stock Non-cumulative,
downgraded to Caa3(hyb) from Caa1(hyb)
..Outlook Action:
....Outlook changed to No Outlook from Ratings
under Review
Issuer: Deutsche Hypothekenbank (Actien-Gesellschaft)
..Upgrades:
....Long-term Counterparty Risk Ratings,
upgraded to A3 from Baa2
....Long-term Bank Deposits,
upgraded to A3 from Baa2, outlook changed to Stable from Ratings
under Review
....Long-term Counterparty Risk Assessment,
upgraded to A3(cr) from Baa2(cr)
....Long-term Issuer Ratings,
upgraded to A3 from Baa2, outlook changed to Stable from Ratings
under Review
....Baseline Credit Assessment, upgraded
to ba3 from b2
....Adjusted Baseline Credit Assessment,
upgraded to ba1 from ba3
....Senior Unsecured Regular Bond/Debenture,
upgraded to A3 from Baa2, outlook changed to Stable from Ratings
under Review
....Senior Unsecured Medium-Term Note
Program, upgraded to (P)A3 from (P)Baa2
....Junior Senior Unsecured Regular Bond/Debenture,
upgraded to Baa2 from Ba1
....Subordinate Regular Bond/Debenture,
upgraded to Ba2 from B1
....Subordinate Medium-Term Note Program,
upgraded to (P)Ba2 from (P)B1
..Affirmations:
....Short-term Counterparty Risk Ratings,
affirmed P-2
....Short-term Bank Deposits,
affirmed P-2
....Short-term Counterparty Risk Assessment,
affirmed P-2(cr)
....Short-term Issuer Ratings,
affirmed P-2
....Other Short Term, affirmed (P)P-2
..Outlook Action:
....Outlook changed to Stable from Rating
under Review
Issuer: NORD/LB Luxembourg S.A. Covered Bond Bank
..Upgrades:
....Long-term Counterparty Risk Ratings,
upgraded to A3 from Baa2
....Long-term Bank Deposits,
upgraded to A3 from Baa2, outlook changed to Stable from Ratings
under Review
....Long-term Counterparty Risk Assessment,
upgraded to A3(cr) from Baa2(cr)
....Long-term Issuer Ratings,
upgraded to A3 from Baa2, outlook changed to Stable from Ratings
under Review
....Baseline Credit Assessment, upgraded
to ba3 from b2
....Adjusted Baseline Credit Assessment,
upgraded to ba1 from ba3
....Senior Unsecured Medium-Term Note
Program, upgraded to (P)A3 from (P)Baa2
..Affirmations:
....Short-term Counterparty Risk Ratings,
affirmed P-2
....Short-term Bank Deposits,
affirmed P-2
....Short-term Counterparty Risk Assessment,
affirmed P-2(cr)
....Short-term Issuer Ratings,
affirmed P-2
..Outlook Action:
....Outlook changed to Stable from Rating
under Review
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in November 2019. 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, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
Swen Metzler, CFA
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
Client Service: 44 20 7772 5454
Alexander Hendricks, CFA
Associate Managing Director
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
