TEXT-Fitch affirms BremerLB's IDR at 'A', cuts VR to 'bbb-'
(The following statement was released by the rating agency)
Feb 01 - Fitch Ratings has downgraded Bremer Landesbank Kreditanstalt Oldenburg - Girozentrale's (BremerLB) Viability Rating (VR) to 'bbb-' from 'bbb'. At the same time the agency affirmed BremerLB's Long-term Issuer Default Rating (IDR) at 'A' with a Stable Outlook. A full list of rating actions is at the end of this rating action commentary.
RATING ACTION RATIONALE
The affirmation of the IDRs reflects the fact that Fitch's view of the extremely high likelihood of state support for BremerLB is unchanged, in light of the high systemic importance of the bank to its local region as well as the strategic stake the respective federal states hold in the bank.
The downgrade of BremerLB's VR is driven by the continued deterioration in the shipping industry, which forms a sizeable proportion of the bank's credit exposure. Impairment charges for the bank's shipping portfolio have increased substantially in light of market conditions, but would have to increase further if the medium-term outlook for the shipping industry worsens beyond the bank's current expectations. The prolonged crisis in the industry goes beyond the normal cycle factored into Fitch's ratings, and an end to the crisis is not yet in sight. The bank's improving but moderate pre-impairment profit level means that capital could start to be eroded if further impairment charges are needed, undoing the improvement in capitalisation the bank underwent in 2012.
RATING DRIVERS AND SENSITIVITIES - IDRS, SUPPORT RATING FLOOR AND SENIOR DEBT
The IDRs, Support Rating Floor (SRF) and the rating of BremerLB's guaranteed debt are sensitive to a change in Fitch's view of the propensity and ability of the states of Lower Saxony ('AAA'/Stable) and Bremen (not rated) to provide support. The states' creditworthiness is underpinned by the strength of the German solidarity system, which links the creditworthiness of each federal state to that of the Federal Republic of Germany ('AAA'/Stable). As such the support-driven ratings of BremerLB are also sensitive to any change to the Federal Republic of Germany's rating.
RATING DRIVERS AND SENSITIVITIES - VR
BremerLB's VR reflects its strong regional franchise, high degree of co-operation with the local savings banks and adequate overall risk profile. BremerLB's VR also reflects its track record of stable earnings, demonstrated during the current financial crisis.
The VR is negatively affected by the risks arising from the bank's substantial exposure to cyclical industries, especially shipping, as outlined above, and is sensitive to future developments within these industries. The VR is sensitive to the degree of progress the bank is able to make in reducing its exposure to this higher-risk sector. Significant further deterioration in the outlook for the shipping industry could also result in a downgrade.
The bank is dependent on wholesale funding although it benefits from a stable and diversified investor base, underpinned by access to the local savings bank network. Funding cost volatility is mitigated by the matching of its long-term asset profile on the funding side.
The rating actions are as follows:
Long-term IDR affirmed at 'A'; Outlook Stable
Short-term IDR affirmed at 'F1'
Viability Rating: downgraded to 'bbb-' from 'bbb'
Support Rating Floor affirmed at 'A'
Support Rating affirmed at '1'
Guaranteed obligations affirmed at 'AAA'
Senior Debt affirmed at 'A'