TEXT-Fitch cuts Berlin Hyp's public sector pfandbriefe to 'AA-'

Aug 6 - Fitch Ratings has downgraded Berlin Hannoversche Hypothekenbank's
(Berlin Hyp; 'A+'/Stable/'F1+') outstanding public sector Pfandbriefe
to 'AA-' from 'AAA' and removed them from Rating Watch Negative (RWN). The bonds
were placed on RWN in April 2012 following the issuer's announcement that it
will reduce the level of overcollateralisation (OC) held in the programme.

The downgrade follows a change in the agency's view on the level of OC it gives
credit to in its analysis following the issuer's announcement. As the issuer
will not commit to any level of OC above the legal minimum, Fitch has based its
analysis on the legal nominal OC of 0% required by the German Covered Bonds Law
(additionally, the law also demands a minimum OC of 2% on a stressed NPV basis).
A level of 0% nominal OC only allows Berlin Hyp's public sector Pfandbriefe to
be rated 'AA-' based on the issuer's IDR of 'A+' and one notch uplift to account
for superior recoveries given default on the bonds. As a consequence, a
downgrade of the issuer would likely result in a downgrade of the public-sector
Pfandbriefe.

Berlin Hyp's Long-term Issuer Default Rating (IDR) of 'A+' and an unchanged
Discontinuity Factor (D-Factor) of 7.3%, would enable Berlin Hyp 's public
sector Pfandbriefe to be rated up to 'AAA' on a probability of default (PD)
basis. However, in Fitch`s view the uncertainty on OC means that a rating above
the issuer's IDR on a PD basis cannot be achieved.

Based on line-by-line data provided by Berlin Hyp, Fitch has analysed the cover
pool's credit risk as of 30 June 2012. Compared to the analysis based on end of
September 2011 data, the pool has decreased by 28.2%. At the same time the OC
has reduced to 7.4% from 13.7%. Despite the significant pool reduction the risk
profile of the Berlin Hyp's public sector covered bond programme in terms of
credit risk and market risks is almost unchanged. Fitch calculated a default
rate and recovery rate for the 'AAA' scenario of 3.5% and 30.2%, respectively,
compared to 3.3% and 35.6% within 2011's analysis. The Pfandbriefe's rating is
credit-linked to the rating of Germany, as around 82% of the cover pool is
directly exposed to or guaranteed by the German sovereign and federal states.

As of 30 June 2012, Berlin Hyp's EUR5.9bn outstanding public sector Pfandbriefe
were secured by a cover pool of EUR6.4bn. German exposure accounted for 89.4% of
the cover pool followed by Swiss (3.5%) and Austrian (3.4%) exposure. The
exposure to non-'AAA' countries represents less than 1.0% of the portfolio.

As most of the assets (99.6%) and all covered bonds are EUR-denominated, there
are no significant currency mismatches. The programme has an open interest rate
position, as around 15.8% of the assets are floating rate compared to only 7.2%
of the Pfandbriefe. Fitch has taken all mismatches into account in modelling the
expected cash flows by applying its interest rate stress assumptions.

As a significant proportion (8.1%) of the cover assets consist of short-term
money market transactions with the issuer's parent company, Landesbank Berlin AG
(LBB; 'A+'/Stable/'F1+'), the cover pool could suffer from LBB's potential
default. This additional risk for Pfandbriefe holders is in the agency's view
mitigated by Berlin Hyp's public commitment that it would replace the unsecured
exposure to LBB with other eligible assets upon the parent ceasing to be rated
'F1+' by Fitch.

Fitch has published an exposure draft outlining a number of enhancements to its
criteria for rating covered bonds (see 'Fitch: Exposure Draft: Global Covered
Bonds Rating Criteria' dated 30 May 2012 at www.fitchratings.com). If
implemented as proposed, the criteria changes would not impact the rating of
Berlin Hyp's public-sector Pfandbriefe.

More details on the portfolio and Fitch's analysis will be available in a credit
update, which will shortly be available at www.fitchratings.com.

Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable criteria, 'Covered Bonds Rating Criteria' dated 30 May 2012; 'Covered
Bonds Counterparty Criteria', dated 25 July 2012 are available at
www.fitchratings.com.

Applicable Criteria and