Moody’s downgraded Commerzbank from A3 to Baa1 and Hypothekenbank Frankfurt (HF) from Baa2 to Baa3 yesterday (Tuesday) as a result of bank-specific and external factors, said the rating agency, but only HF’s public sector Pfandbrief programme is likely to be affected, according to analysts.

Commerzbank’s downgrade was prompted by a one notch cut of the bank’s baseline credit assessment (BCA) from baa3 to ba1, said Moody’s.

The lowering of Commerzbank’s standalone credit profile was driven by a combination of bank-specific and external factors, said Moody’s, including franchise pressures and the bank’s operational weakness, which materially constrains its internal capital generation capacity, and the challenging operating environment of the German retail banking market in the context of the crisis in the euro area.

The downgrade of HF was also driven by a downgrade of the bank’s BCA, from caa1 to caa2, that reflects the constraints stemming from its large exposure to Italian and Spanish commercial real estate and public sector assets, and the persistent loss generation of these portfolios, according to the rating agency.

“In the context of pressured sovereign credit profiles and the recent setbacks in the efforts of European leaders to resolve the euro area debt crisis, these constraints represent a major burden for HF and the whole group,” said Moody’s.

Florian Eichert, senior covered bond analyst at Crédit Agricole, said that among the covered bond programmes of the two issuers, the only one likely to be affected is HF’s public sector programme, currently rated Aa1.

“Based on the previous issuer rating of Baa2 and the ‘high’ TPI, HF public sector covered bonds had no leeway left,” he said. “As such, they will have to go down by one notch to the same level as the mortgage Pfandbriefe, currently rated Aa2.”