Standard & Poor’s on Friday downgraded mortgage Pfandbriefe and DSL Briefe issued by Deutsche Postbank because the programmes did not support their previous ratings under the rating agency’s updated counterparty criteria. S&P also withdrew its ratings upon the issuer’s request.

Deutsche Postbank’s mortgage covered bonds were cut from AAA to AA+ and DSL Briefe from AAA to AA-, on negative outlook, while the AAA rating of the issuer’s public sector covered bonds was affirmed on stable outlook. S&P that it had identified account bank and comingling risks as being relevant for the programmes.

Under worst case scenario assumptions for sizing commingling risk, it concluded that the available credit enhancement of 22.15% for the mortgage covered bond programme as of 30 September 2012 is insufficient to cover a target credit enhancement of 22.92% and is only consistent with three notches of uplift above the issuer’s rating of A+.

For DSL Briefe, the available credit enhancement of 29.98% is insufficient to cover a target credit enhancement of 41.28%, and is only consistent with one notch of uplift above the issuer’s rating, said S&P.

S&P also said that under the updated methodology, the mortgage covered bonds and DSL Briefe programmes could be six notches above the issuer rating if the counterparty risk were fully mitigated, but as the risk is not fully covered the programmes were put on the same negative outlook prevailing for the issuer.

The rating of Deutsche Postbank’s public sector covered bonds was affirmed at AAA with a stable outlook as the rating agency said that available credit enhancement is commensurate with the target credit enhancement necessary for four notches of uplift, and that the rating incorporated only four of five possible notches of uplift above the issuer’s rating, therefore a potential one notch downgrade of the issuer would not automatically lead to a downgrade of the outstanding covered bonds.

After the downgrade, S&P withdrew all the covered bond ratings upon Deutsche Postbank’s request. Deutsche Postbank said on 28 December that it was terminating all its S&P ratings at the end of 2012.

“In view of its integration with the Deutsche Bank Group, three ratings are no longer necessary for Postbank,” it said. “For this reason, the bank has decided not to renew the S&P bank rating agreement when it expires at the end of the year

DSL Briefe are legacy issues of Deutsche Siedlungs- und Landesrentenbank, which Deutsche Postbank took over in 1999.