Moody’s lowered its ratings of covered bonds issued by Deutsche Hypothekenbank, DVB Bank and Eurohypo late Friday after downgrading the banks supporting the programmes last Tuesday as part of a wider review of German financial institutions’ ratings.

Eurohypo mortgage and public sector covered bonds were cut from Aaa to Aa1, where they are now restricted under Moody’s TPI framework as a result of TPIs of “high” and the issuer’s new Baa2 rating, down from A3.

The mortgage covered bonds remain on review for downgrade while Moody’s awaits communication from Eurohypo regarding its plans to maintain an amount of OC in a form consistent with their Aa1 rating. The public sector covered bonds are no longer on review, said Moody’s, because the “form and level” of OC required to maintain a Aa1 rating (10%) is already in place.

Deutsche Hypothekenbank mortgage and public sector covered bonds were cut from Aaa to Aa2, below the maximum Aa1 level achievable based on their TPIs of “high” and the issuer’s Baa2 rating (which was lowered from Baa1). Moody’s said that the form and level of the overcollateralisation required to maintain the Aa2 ratings are already in place and that the ratings are based on “uncommitted” OC.

DVB Bank SE ship covered bonds were cut from Aa3 to A3, after the issuer was cut from A1 to Baa1. Moody’s noted that it rates all ship covered bonds one notch above the respective issuer rating.

The rating agency said that SEB mortgage covered bonds remain on review for downgrade while it awaits communication from the issuer regarding its plans to amend its commitment to maintain an amount of OC consistent with the covered bonds’ Aa1 rating.

Norddeutsche Landesbank mortgage and public sector Pfandbriefe were affirmed at Aaa, while UniCredit Bank public sector Pfandbriefe were affirmed at Aaa and mortgage Pfandbriefe at Aa1. Moody’s said that the necessary OC was already in place.

Bernd Volk, head of covered bond research at Deutsche Bank, said that Moody’s differentiation between high and low rated issuers with respect to OC levels above the legal minimum does not take into account all of the details of the Pfandbrief Act and in this case also neglects group support for Deutsche Hypothekenbank and support for Eurohypo by Commerzbank.