Moody's warns crisis threatens Commerzbank rating

Tue Apr 7, 2009 7:57am EDT

* Moody's - losses would increase pressure on bank's rating

* Hot spots are eastern Europe and property loans

* State taking majority stake would ease rating squeeze

By John O'Donnell

FRANKFURT, April 7 (Reuters) - Commerzbank could rack up further losses of almost 7 billion euros ($9.5 billion) this year and next as the global crisis hits loans, a development that would threaten the bank's credit rating, said Moody's.

A credit rating downgrade would cast a further cloud over the bank, which is already grappling with problems at newly acquired Dresdner Bank, its property financier Eurohypo and with a 5 billion euro loan to struggling car-parts firm Schaeffler.

Moody's Investors Service said writedowns on loans that went unpaid as well as mounting credit risk in the wake of economic gloom would burn through the bank's capital cushion.

"The pressure points for Commerzbank are loan exposure in central and eastern Europe and its commercial real estate portfolio," Katharina Barten, Moody's chief analyst for Commerzbank, told Reuters.

"We expect further losses which could be as high as 6.8 billion euros over the next 18 months," she said. "If this scenario happens, it will increase pressure on the current ratings."

Commerzbank declined to comment.

DEBT MOUNTAIN

Barten said that it would help the bank if the government were to increase its shareholding from its current 25 percent.

"If the government stake in Commerzbank were to go up, and especially if it were to go to majority ownership, then that would take the pressure off the rating. Even more so if the government were to say it would remain a shareholder long term."

However, Barten said she did not expect Berlin to take control of Commerzbank. The state's implied backing of the lender already supports its current Aa3 rating.

The state's reluctance to beef up its holding means almost all of the 18 billion-euro Commerzbank rescue was paid for by expensive government loans, landing the bank with an annual interest bill of 1.5 billion euros.

"This will remain a rating constraint for Commerzbank in the foreseeable future," said Barten. "The reason is that it has heavy interest payments rather than dividends, which must be met each year."

Commerzbank's rating, which is two notches below Deutsche Bank (DBKGn.DE), determines its cost of financing -- the lower the rating, the more expensive it is to borrow.

Moody's has Commerzbank on "negative outlook", which means it could be downgraded over the next 12-18 months.

Credit investors have grown increasingly jittery about the bank since the start of the year after the state was repeatedly forced to intervene to prop it up.

Credit default swap spreads on Commerzbank's debt have jumped by about 50 percent since January, reflecting the higher cost of insuring the bank's debt against default. Its shares have fallen by about a third over that time. (Reporting by John O'Donnell; Editing by Knut Engelmann, Greg Mahlich) ($1=.7389 euros)

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