(The following statement was released by the rating agency)
Dec 10 - Fitch Ratings says that Landesbank Berlin AG's (LBB) planned
transformation into a savings bank should make the bank more efficient in the
long term. The agency's comment follows media response to a letter from LBB's
management board on the 4th of December 2012 to its employees saying that the
representatives of the ultimate owners of LBB and DekaBank, the German savings
banks, are planning to propose a spin-off of some of LBB's businesses to their
decision making bodies.
According to the plan LBB will be transformed into a savings bank operating in
the region of Berlin and Brandenburg, likely named Berliner Sparkasse, by
spinning off its subsidiary Berlin-Hannoversche Hypothekenbank AG (Berlin Hyp)
as well as transferring customer driven capital market activities to DekaBank.
Berlin Hyp would be positioned as an independent commercial real estate lender
and an integral part of the group of German savings banks. Fitch believes that
the decision making process and approval by the regulatory authorities could
take several months.
Fitch believes that LBB's future focus on its role as a savings bank is tailored
to its strengths, specifically its entrenched franchise in Berlin as the leading
retail bank with two million retail and business customers, its strong funding
franchise through cooperation with the German savings banks as well as its
developing role as a service and product provider to the savings banks.
Fitch added that LBB's weaknesses, specifically limited growth opportunities in
the region as well as limited strategic flexibility because of modest
profitability and capitalisation, will be difficult to overcome in the short- to
medium term and would be compounded by the loss of stable earnings from Berlin
However, depending on the details of the asset and business split, LBB's
risk-adjusted capitalisation might improve if its concentration risks to
commercial real estate and its portfolio of sovereign and international
financial institutions are reduced. Fitch believes that the pressure for LBB to
improve its earnings from its regional franchise and its role within the savings
banks group as well as greater transparency around the risk-return profile of
its regional operations should promote greater efficiency.
In addition, if the reorganisation takes place, Fitch expects Berlin Hyp to
operate successfully as an independent bank working in cooperation with the
German savings banks, based on its solid performance during the financial crisis
and proven risk management practices. Berlin Hyp has benefited from the
withdrawal of competitors over the past two years. At the same time its
profitability has benefited from its low loan impairment charges, lean cost
structure (as a result of function sharing between LBB and Berlin Hyp), interest
revenues from maturity transformation and low funding costs through its
affiliation to the German Sparkassen and its Pfandbrief franchise.
Similarly to LBB, Berlin Hyp's risk return profile would be influenced by which
assets are spun off to it. However, at this stage it is premature to assess the
impact as the details are not yet decided.
Fitch believes that if the proposed new corporate structure goes ahead, the
agency would continue to view there to be an extremely high probability of
support from the German savings banks, if required, for both banks.
(Caryn Trokie, New York Ratings Unit)