S&P downgraded the issuer rating of Aegon Bank, trading as Knab, from A- to BBB+, on negative outlook, yesterday (Tuesday), citing uncertain business prospects resulting from its planned sale by ASR Nederland to Austria’s Bawag group.

The sale was announced on Thursday, with the transaction expected to close in the second half of this year.

Bawag said the acquisition will expand the group’s footprint in the Dutch retail and SME banking space, and position it for future growth in one of the bank’s core markets.

However, S&P said Aegon Bank’s credit profile will deteriorate after the deal is completed since the bank will face uncertain business prospects, given that it relies primarily on ASR entities – specifically Aegon Hypotheken – to originate mortgages, even if it is due to start its own mortgage proposition this year.

“We think Bawag group is unlikely to provide the same level of support to business generation, given its smaller franchise in the Netherlands,” the rating agency said.

Aegon Bank’s covered bonds – a legacy conditional pass-through (CPT) programme and a newer soft bullet programme latterly used for benchmark issuance – are rated by only S&P. The AAA ratings are not considered by analysts to be at risk.

ING head of financials strategy Maureen Schuller, for example, noted that the soft bullet still has two unused notches of collateral uplift, while the rating of the CPT programme is delinked from issuer rating pressure under S&P’s methodology for such covered bonds.

Commerzbank head of financials and covered bond research Ted Packmohr meanwhile said the acquisition raises questions over the future issuance activity from Aegon and Bawag. He noted that one-third (€3.8bn) of the cover assets of Bawag mortgage Pfandbriefe already come from its Dutch business.

“Hence, it cannot be ruled out that this channel will also be used for Aegon’s new lending business in the future in order to realise larger economies of scale,” he said, highlighting that, after being acquired by Bawag, Südwestbank in Germany became a German branch of the Austrian bank and ceased issuing Pfandbriefe.

However, he noted that various considerations, such as Aegon’s size, could merit it maintaining an independent capital markets funding hub, while the tighter levels of Aegon covered bonds versus Bawag’s could even see the Dutch entity issuing more by incorporating Dutch assets that would hitherto have been funded via Austrian covered bonds.