TEXT-S&P affirms Eurohypo at 'A-/A-2'; outlook negative

Eurohypo's funding is "average" and its liquidity "adequate," in our view. We base this assessment solely on ongoing group support because we anticipate that Commerzbank will continue to meet most of Eurohypo's sizable unsecured funding needs.

We regard Eurohypo as a "highly strategic" subsidiary of Commerzbank, according to our group methodology. The long-term ratings on Eurohypo are therefore one notch below the ratings on Commerzbank, representing a four-notch uplift from Eurohypo's SACP of 'bb+'.

At this stage, the European Commission's latest decision and Commerzbank management's announcement to run off the assets of the Eurohypo group have no impact on our view of Eurohypo's group status. We currently believe that until the runoff of assets is completed, Eurohypo will continue to receive timely funding and liquidity from its parent.

Outlook

The negative outlook reflects some remaining uncertainty regarding the future ownership of Eurohypo. Although the sale of the bank has so far not materialized, we cannot exclude a potential sale in the future. Nonetheless, we regard the likelihood of finding a buyer that would be able to provide the necessary funding for Eurohypo as very low.

The negative outlook on Eurohypo also reflects the negative outlook on our rating on Commerzbank. We believe our ratings on Commerzbank will remain under pressure over the next one to two years.

The negative outlook on Eurohypo Luxembourg mirrors that on Eurohypo, reflecting its status as a core subsidiary and its close integration with Eurohypo. The ratings on Eurohypo Luxembourg will therefore continue to move in line with those on its parent.

Ratings Score Snapshot

To From

Issuer Credit Rating A-/Negative/A-2 A-/Negative/A-2

SACP bb+ bb

Anchor a- a-

Business Position Weak (-2) Weak (-2)

Capital and Earnings Adequate (0) Moderate (-1)

Risk Position Weak (-2) Weak (-2)

Funding Average Average

and Liquidity and Adequate (0) and Adequate (0)

Support +4 +5

GRE Support 0 0

Group Support +4 +5

Sovereign Support 0 0

Additional Factors 0 0

Related Criteria And Research

All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.

-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011

-- Group Rating Methodology And Assumptions, Nov. 9, 2011

-- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011

-- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011

-- Bank Capital Methodology And Assumptions, Dec. 6, 2010

Ratings List

Ratings Affirmed

Eurohypo AG

EUROHYPO Europaeische Hypothekenbank S.A.

Counterparty Credit Rating A-/Negative/A-2

Certificate Of Deposit A-/A-2

Eurohypo AG

Senior Unsecured A-

Subordinated BBB/Watch Neg

Eurohypo Capital Funding Trust I

Preferred Stock* C

Eurohypo Capital Funding Trust II

Preferred Stock* C

*Guaranteed by Eurohypo AG.