Fitch Affirms & Withdraws Landesbank Berlin's Ratings

Mon Feb 24, 2014 12:21pm EST

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(The following statement was released by the rating agency) FRANKFURT/LONDON, February 24 (Fitch) Fitch Ratings has affirmed Landesbank Berlin AG's (LBB) Long- and Short-term Issuer Default Ratings (IDRs) at 'A+' and 'F1+', respectively. LBB's ratings have subsequently been withdrawn as Fitch no longer considers the ratings, which are uncompensated, to be relevant to its coverage. Fitch will no longer provide ratings or analytical coverage. A full list of rating actions is at the end of this release. The ratings of LBB's subsidiary Berlin-Hannoversche Hypothekenbank AG (Berlin Hyp) are not affected by this rating action. KEY RATING DRIVERS - IDRs, SUPPORT RATINGS AND SENIOR DEBT The affirmation of LBB's IDRs prior to withdrawal reflects Fitch's view that there would be an extremely high probability of support from the savings banks (its 100% owner), if required. As a result of the restructuring LBB will become a smaller bank, focussing on its savings bank activities. LBB's strategic importance is high for the savings banks, in particular as it operates one of the largest local savings bank in Germany (Berliner Sparkasse). The Stable Outlook on LBB's Long-Term IDR reflects Fitch's expectation that the propensity and ability of the savings banks to support LBB will remain unchanged. The rating of state-guaranteed/grandfathered debt reflects the credit quality of the guarantors (State of Berlin) as well as Fitch's assessment of the Gewaehrtraegerhaftung. The State of Berlin's 'AAA' rating reflects the stability of the solidarity system that underpins the creditworthiness of all German Laender, linking their creditworthiness to that of the Federal Republic of Germany (AAA/Stable). KEY RATING DRIVERS - VIABILITY RATING (VR) The affirmation of LBB's VR takes into account its future more focused business model as a regionally operating savings bank underpinned by rebranding to Berliner Sparkasse. LBB has an entrenched franchise in Berlin as the leading retail bank, but this is currently a relatively small part of the LBB Group, based on retail banking segment assets (and including consolidation of its large mortgage bank subsidiary, Berlin Hyp). The VR also factors in Fitch's expectation that the restructuring of the LBB Group will take several years, possibly stretching beyond the 2017 completion date LBB has announced. First steps have been taken, for example LBB transferred its customer-related capital markets business and its investment subsidiary LBB-INVEST to DekaBank Deutsche Girozentrale (Deka) with effect from the start of 2014. The VR further reflects Fitch's positive view on the ability of LBB's management and its owners to manage the process successfully. This will be important, especially because Fitch does not expect that LBB's weak recurring earnings base will provide a sufficient buffer to absorb the necessary restructuring costs in 2014-2016, so net losses are possible. In addition, LBB's risk-adjusted capitalisation remains only moderate in light of concentration risks in its commercial real estate exposures - which however will shrink once Berlin Hyp is separated from LBB - and the investment portfolio of sovereign and international financial institutions risks. These will remain on LBB's books after the Deka transaction. However, capitalisation improved in 2012 and 2013. In light of the ECB's comprehensive assessment this year, Fitch cannot rule out the possibility that the stress test could result in a capital shortfall. However, such a shortfall could be dealt with by converting the silent participation of EUR700m held by the owners into Basel III compliant capital instruments. KEY RATING DRIVER - SUBORDINATED DEBT LBB's subordinated debt instruments have been affirmed at 'A' and withdrawn. In Fitch's opinion, if LBB was unable to meet payments on its subordinated debt from its own resources, these would be met directly or indirectly by the savings banks. Therefore, LBB's subordinated debt rating is notched down only once from the savings banks' IDR of 'A+' to reflect their junior status. RATING ACTIONS Long-term IDR affirmed at 'A+'; Outlook Stable; and withdrawn Short-term IDR affirmed at 'F1+'; and withdrawn Viability Rating affirmed at 'bbb-'; and withdrawn Support Rating affirmed at '1'; and withdrawn Guaranteed obligations affirmed at 'AAA'; and withdrawn Guaranteed market-linked securities affirmed at 'AAAemr'; and withdrawn Senior debt affirmed at 'A+'/'F1+'; and withdrawn Subordinated lower Tier II debt: affirmed at 'A'; and withdrawn Contact: Primary Analyst Michael Dawson-Kropf Senior Director +49 69 76 80 76 113 Fitch Deutschland GmbH Taunusanlage 17 D-60325 Frankfurt am Main Secondary Analyst Krista Davies Analyst +44 20 3035 1579 Committee Chairperson Gordon Scott Managing Director +44 20 3530 1075 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 31 January 2014 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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