Moody's Cuts Ratings On Swathe Of German Banks As Risks Increase

Tom Burroughes

6 June 2012

Moody’s Investor Service has cut the long-term debt and deposit ratings for six German banking groups and the German subsidiary of a foreign bank, while ratings for another group have been confirmed.

The international rating agency also cut the long-term debt and deposit ratings for several subsidiaries of these groups, by up to three notches. At the same time, the short-term ratings for three groups as well as one German subsidiary of a foreign group have been downgraded by one notch, triggered by the long-term rating downgrades.

“Further to these actions, Moody's has assigned stable outlooks to the ratings of most German banks. The ratings of two groups and of one German subsidiary of a foreign bank carry negative outlooks, reflecting bank-specific vulnerabilities to a possible further deterioration of the environment,” it said.

Moody’s said it will conclude its rating review of Deutsche Bank – Germany’s biggest bank and a significant wealth management business – together with reviews for other global firms with large capital markets operations.

Risks

“Today's rating actions are driven by the increased risk of further shocks emanating from the euro area debt crisis, in combination with the banks' limited loss-absorption capacity,” the rating agency said in a statement yesterday.

The (asset-weighted) average deposit rating of German banks of A2 now falls in the mid-range for western European banking systems, Moody’s said.

“The average standalone credit assessment of baa3 ranks in the mid-to-lower range compared with European peers. Moody's has not changed its assumptions about the likelihood of support from external sources, such as parent owners, broader sector groups, and governments,” it said.

“Reflecting these support assumptions, many German banks' debt and deposit ratings continue to be positioned several notches above their standalone credit assessments,” it said.

Banks affected by the ratings cuts included: Commerzbank; Deutsche Schiffsbank; Eurohypo; Dekabank Deutsche Girozentrale; DZ Bank Deutsche Zentral-Genossenschaftsbank; DVB Bank, Landesbank Baden-Wuerttenberg, Landesbank Hessen-Thüringen and Norddeutsche Landesbank Girozentrale.