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Fitch Affirms Three Southern Landesbanken After Sector Review
May 4, 2017 / 3:11 PM / 7 months ago

Fitch Affirms Three Southern Landesbanken After Sector Review

(The following statement was released by the rating agency) FRANKFURT/LONDON, May 04 (Fitch) Fitch Ratings has concluded its periodic review of three southern German Landesbanken, affirming the Long-Term Issuer Default Ratings (IDRs) of Bayerische Landesbank (BayernLB), Landesbank Baden-Wuerttemberg (LBBW) and Landesbank Saar (SaarLB) at 'A-' and their Viability Ratings (VRs) at 'bbb','bbb+' and 'bb+', respectively. The three banks' IDRs are driven by strong institutional support from their owners, which are the respective German regional states, the regional savings banks and ultimately the German savings bank organisation, Sparkassen-Finanzgruppe (SFG). Fitch's institutional support considerations are underpinned by the statutes of SFG and the Landebanken's institutional protection fund, and by our view that the owners consider their investment in their Landesbanken long term and strategic. This reflects the banks' focus on their statutory roles, which include supporting their regional economies, acting as central institutions for the savings banks in their regions and as house banks for their regional states. Fitch uses the lower Long-Term IDR of the Landesbanken owners', ie SFG's, as anchor for determining the three banks' IDRs. In our view, support to a failing Landesbank would have to be provided by SFG as well as the respective regional states to avoid triggering state aid considerations and resolution under the German Recovery and Resolution Act. The stability of Germany's solidarity and financial equalisation system underpins the regional states' IDRs, which are equalised with those of the German sovereign (AAA/Stable). SFG's support ability, as expressed by its Long-Term IDR of 'A+', is strong, but not as strong as that of the regional states. We notch down the three banks' Long-Term IDRs twice from SFG's 'A+' because we consider their roles for their owners strategic, but not key and integral. The notching also reflects potential legal and regulatory barriers related to state aid considerations and provisions of German resolution legislation. The Stable Outlook reflects our stable support assumptions and the Stable Outlook on SFG's Long-Term IDR. The three banks' VRs reflect their broad stability in 2016 but also profitability challenges in the German banking sector, specifically persistent low interest rates, narrow margins and high competition that are a drag on all Landesbanken's business models. The three banks' resulting moderate profitability and material concentration on large borrowers and industrial sectors limit their VRs to the 'bbb' range at best. BayernLB's 'bbb' VR primarily reflects its improved asset quality and capitalisation, driven by further reduction of legacy assets. The VR remains constrained by the bank's modest profitability, even though its stable earnings in 2016 have created favourable conditions to repay its EUR1 billion outstanding state aid to Bavaria and conclude its state aid procedure. This should open opportunities to diversify its franchise. LBBW's 'bbb+' VR primarily reflects its strong franchise in Baden-Wuerttemberg, solid position in German corporate lending, sound asset quality and strong capitalisation. However, the transformation of its poorly performing retail subsidiary into to a multi-channel bank drives IT and restructuring costs, which put pressure on LBBW's modest profitability. SaarLB's 'bb+' VR primarily reflects its improved but still modest capitalisation. The limited ability of its small capital base to absorb potential losses from the bank's concentrated loan book is a constraining factor. The VR also reflects a company profile constrained by SaarLB's concentration on the small and moderately prosperous region of Saarland and its niche financing businesses in the commercial real estate and renewables sectors in France. The Rating Action Commentaries on the three banks, published today, are available at Contact: Roger Schneider, CIIA Director +49 69 76 80 76 242 Fitch Deutschland GmbH Neue Mainzer Strasse 46-50 60311 Frankfurt am Main Sebastian Schrimpf, CFA Associate Director +049 69 76 80 76 136 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:; Rebecca O'Neill, London, Tel: +44 203 530 1697, Email: Additional information is available on 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. 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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. 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