June 9, 2017 / 1:36 PM / 2 months ago

Fitch Affirms HSH Nordbank's IDR at 'BBB-'; Outlook Negative

(The following statement was released by the rating agency) FRANKFURT/LONDON, June 09 (Fitch) Fitch Ratings has affirmed HSH Nordbank's (HSH) Long-Term Issuer Default Rating (IDR) at 'BBB-', Short-Term IDR at 'F3' and Support Rating (SR) at '2'. The Outlook is Negative. Its Viability Rating (VR) was affirmed at 'b'. A full list of rating actions is at the end of this rating action commentary. The affirmation follows a periodic review of the bank. The European Commissions (EC) in May 2016 ordered the privatisation of the bank by February 2018 in an open, transparent, non-discriminatory tender process or, if the sale is unsuccessful and HSH's viability not confirmed, a wind-down of the bank. HSH initiated the sales process in January 2017 and received non-binding bids from a range of investors with the process ongoing. KEY RATING DRIVERS IDRS, SENIOR DEBT AND SUPPORT RATING The bank's IDRs, senior debt rating and SR are driven by support from HSH's owners comprising the federal states of Schleswig-Holstein (AAA) and Hamburg (AAA), the regional savings banks and ultimately the Sparkassen-Finanzgruppe (SFG, A+/Stable), including the Sparkassen (savings banks) and Landesbanken-shared institutional protection fund (Sicherungseinrichtung). HSH's Long-Term IDR is five notches below SFG's Long-Term IDR, which reflects Fitch's view that the bank is strategic to its owners, but also its weak company profile, which in Fitch's opinion makes support less likely given the private investor test under EU legislation. HSH is currently in the midst of a privatisation process and we expect a clearer picture to emerge on final bidders over the coming months. Fitch believes that the pool of potential buyers is limited given HSH's overall weak asset quality and profitability, but under the terms of the EU agreement HSH could also be sold in parts. The agreement requires a positive, state aid-free sale price and a sale will be subject to the EC's assessment of viability of the new entity and its final approval. If the privatisation is successful HSH's regional state owners will no longer be majority shareholders and would only be allowed to own a combined share of up to 25% for a period of up to four years, and following a privatisation Fitch would likely consider the public sector owners' stakes in HSH no longer a strategic investment. If a sale is unsuccessful, the bank will have to cease new business activities and manage the assets with a view of winding them down. In this scenario, we expect that the existing owners will have financial and reputational incentives to ensure that the wind-down is managed in a way that senior unsecured creditors do not incur losses. The Negative Outlook on HSH's reflects our expectation that a sale could result in a downgrade of the IDRs if the new owners have a lower ability or propensity to provide support than HSH's current federal state owners. VR HSH's VR reflects the bank's weak stand-alone credit profile, still burdened by legacy exposures, despite an overall risk reduction in recent years and particularly in 2016. HSH has re-allocated certain business segments to the non-core bank to strengthen the core bank's business and credit profile and profitability metrics. This included a partial carve-out of the shipping portfolio to the non-core bank, which in turn has to bear higher costs. We believe risk reduction efforts over the last two years and stronger impaired loan coverage had a positive impact on the risk profile of the overall bank, because of measures undertaken in preparation for the sales process, but the viability of its business model remains uncertain. Commitments to deleverage the bank's legacy portfolio have led to a moderate improvement in assets quality, and we foresee further declines in the non-performing loan (NPL) ratio in 2017 due to committed asset sales. But HSH's NPL ratio at end-2016 was still the weakest among peers. A decline in risk-weighted assets resulted in an improved fully loaded CET 1 ratio of 13.4% at end-2016, in line with higher-rated peers and its leverage ratio is well above peers'. However, HSH's capitalisation remains burdened by high net impaired loans. The projected sale of a second tranche of assets in the amount of about EUR1.6 billion as part of the EU commitment in 2H17 will underpin an adequate capitalisation into 2018 and provide a sufficient buffer to its current SREP regulatory requirements. Nevertheless HSH's capitalisation will remain vulnerable to further asset quality deterioration in the shipping portfolio and potential negative rating migration even though charter rates improved in 1Q17. HSH's profitability is weak due to a decline in interest-earning assets and high restructuring costs. However, due to a guarantee mechanism EUR156 million of loan loss provisions were released at end-2016, which allowed HSH to report a net profit of EUR121 million. We believe that HSH's profitability is unlikely to materially improve until the bank's future business model has been decided in the event of a privatisation of the bank. HSH has reached its funding targets for 2016, driven by strong covered bond issuance and also unsecured and asset-based funding. Its liquidity metrics remained solid and we expect uninterrupted funding through 2017 in the absence of unexpected shocks to investor confidence during the privatisation process. DCR AND DEPOSIT RATINGS We view HSH as a notable derivative counterparty in light of the hedging activities inherent in its business model. We have aligned HSH's DCR and Deposit Ratings with the bank's respective Long- and Short-term IDRs. In Fitch's opinion, debt buffers do not afford any obvious incremental probability of default benefit over and above the support benefit already factored into their IDRs. STATE-GUARANTEED/GRANDFATHERED SECURITIES The 'AAA' rating of HSH's state-guaranteed/grandfathered senior debt, subordinated debt and market-linked securities reflect the credit strength of the guarantor - the federal state of Schleswig Holstein and the City of Hamburg - and our view that they will honour their guarantees. RATING SENSITIVITIES IDRS, SENIOR DEBT AND SUPPORT RATING HSH's IDRs, senior debt rating and SR are primarily sensitive to the likelihood of a successful privatisation. HSH's IDRs and Support Rating would only be upgraded if a new owner with a high rating and strong ability and propensity to support HSH is found. We believe that this is not impossible but view it highly unlikely. Fitch would likely place HSH's IDRs, senior debt rating and SR on Rating Watch Negative or downgrade the ratings if Fitch concludes that support from a successful buyer is not sufficiently strong to warrant an IDR of at least 'BBB-'. If the privatisation is not successful, HSH's shareholder structure will be unchanged and the bank will be wound down. In this case HSH is likely to remain a member of the protection scheme of the Landesbanken (Sicherungseinrichtung), which means that it could continue to receive support from its owners in combination with SFG to protect senior unsecured bondholders. This could result in the affirmation of its IDR at 'BBB-' if we conclude that imposing losses on senior creditors during the run-down of assets is prevented by the Sicherungseinrichtung and HSH's owners. VR An upgrade of HSH's VR would be contingent on the confirmation of the long-term sustainability of the bank's business model that will allow the bank to generate adequate profitability. Fitch believes that this would ultimately rely on its successful privatisation. A disruption of the sales process or sudden unexpected stress that would significantly undermine investor confidence in the bank and reduce HSH's chances on a successful privatisation could trigger a downgrade of its VR. We believe that in such a scenario HSH is most vulnerable to a stress on liquidity and funding. If HSH is wound-down, we would likely withdraw its VR, in line with our approach for other wind-down institutions where we believe a stand-alone assessment of the bank is not meaningful. DCR AND DEPOSIT RATING DCR and Deposit Ratings are sensitive to changes in HSH's IDRs. STATE-GUARANTEED/GRANDFATHERED SECURITIES The ratings of HSH's state-guaranteed/grandfathered senior debt, subordinated debt and market-linked securities are sensitive to changes in Fitch's view of the creditworthiness of the guarantors. The rating actions are as follows: HSH Nordbank AG Bank Long-Term IDR: affirmed at 'BBB-', Outlook Negative Short-Term IDR: affirmed at 'F3' Support Rating: affirmed at '2' Derivative Counterparty Rating: affirmed at 'BBB-(dcr)' Viability Rating: affirmed at 'b' Long-term senior debt, including programme ratings: affirmed at 'BBB-' Short-term senior debt: affirmed at 'F3' Long-term deposits: affirmed at 'BBB-' Short-term deposits: 'F3' State-guaranteed/grandfathered senior and subordinated debt: affirmed at 'AAA' State-guaranteed/grandfathered market-linked securities: affirmed at 'AAAemr' Senior market-linked securities: affirmed at 'BBB-emr' Contact: Primary Analyst Roger Schneider Director +49 69 768 076 242 Fitch Deutschland GmbH Neue Mainzer Strasse 46-50 60311 Frankfurt am Main Secondary Analyst Ioana Sima Associate Director +44 20 3530 1736 Committee Chairperson Christian Scarafia Senior Director +44 20 3530 1012 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Summary of Financial Statement Adjustments: Fitch re-classifies the hedge effect of the second loss guarantee as an offset to loan impairment charges and removes the balance sheet impact of the compensation from impaired loans reserves to better reflect the economic effect of the second loss guarantee. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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 WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below