DüssHyp sale changes little, says Fitch, highlighting scrutiny
Thursday, 28 August 2014
The sale of Düsseldorfer Hypothekenbank announced earlier this week is likely to face regulatory scrutiny and unlikely to address funding and capital weaknesses at the German bank, Fitch said yesterday (Wednesday).
Lone Star is selling DüssHyp to a group of international buyers, led by UK-based fund Attestor Capital, and Patrick Bettscheider.
The rating agency said that the sale to another financial investor is unlikely to have any rating implications.
“The German mortgage bank model, which combines mostly commercial mortgage lending with public sector lending, funded mainly by Pfandbriefe has been under severe pressure since the financial crisis,” it said. “Almost all of the banks are substantially deleveraging and some are exiting the market completely.
“Financial investors are less strategic and may be less willing or able to address the problems.”
Fitch assigns DüssHyp an issuer default rating (IDR) of BBB+, on negative outlook. It said that the IDR does not factor in potential support as it does not believe financial investors can be relied upon. DüssHyp’s viability rating is ccc, driven by what Fitch perceives as funding and capital weaknesses.
“We believe DüssHyp needs new external capital in the long term to secure its viability and support its protracted transition from public sector to commercial real estate (CRE) lending,” said the rating agency. “The planned conversion of Eu40m of mandatory convertible bonds into equity will only marginally strengthen the bank’s vulnerable capitalisation. This is under constant pressure from recurring losses, which is hindering the growth of the new CRE business.
“Limited access to long term unsecured funding other than that insured by the German deposit protection scheme complicates the establishment of a sustainable franchise.”
Fitch said that a strategic buyer, such as a bank, could be positive for a mortgage bank such as DüssHyp and are preferred by regulators, but that it does not expect consolidation in the field, partly due to regulatory constraints. It noted a recent decision by the German government to abandon a sale of Depfa.
The rating agency said that BaFin, the German financial supervisory authority, is likely to scrutinise DüssHyp’s ability to withstand a crisis, including the financial resources and commitment of the new owners to support the bank.
Fitch said that the negative outlook on DüssHyp’s BBB- rating signals its expectation that IDRs will be downgraded in the first half of 2015 because of an anticipated decrease in state support under the Bank Recovery & Resolution Directive and Single Resolution Mechanism.
A covered bond analyst said that despite the uncertainty around DüssHyp due to the change in ownership, as well as its withdrawal of a 13.2% overcollateralisation regarding public sector Pfandbriefe, DüssHyp Pfandbriefe remain “fundamentally strongly protected” and offer a pick-up relative to its peers’.