Wednesday, May 6, 2009

One peeved Landesbank

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WestLB, fuming even, on learning that rating agency S&P has downgraded the German institution from A- to BBB+ with a negative outlook. Out pops a statement in protest:

The decision of S&P is, in our opinion, difficult to understand, and in particular its timing — immediately before important strategic decisions concerning the future of the German Landesbank sector are taken — appears inappropriate. We would have expected the rating agency to await the outcome of the decision-making process between the federal government, federal states and the owners of the Landesbanks.
WestLB insists it has already made considerable progress in finding solutions to its strategic challenges. It has the “Phoenix risk shield,” which i claimed to have removed toxic assets from its balance sheet. The European Commission is said to be close to a “mutually acceptable” deal on state aid. Oh, and WestLB’s local state owners have agreed to support the bank while a bidder is found.

Notwithstanding the rating action taken by S&P, WestLB and its owners will press ahead systematically with the strategic realignment of the Bank which has been successfully initiated.

That’s it. No guff at the end of the release about this being one of Germany’s leading financial service providers, with deep roots in Germany’s largest federal state, working in close partnership with local savings banks, etc.

S&P have actually downgraded five out of the six German Landesbanks by at least one notch, citing “business model and credit concerns.” Here’s a rather defensive quote from S&P credit analyst Stefan Best:

As we believe there is currently a high likelihood of ownership support, each rating continues to benefit from our view of the respective banks’ ownership support, which uplifts the ratings on Landesbanks by three to five notches…

We observe that Landesbank owners remain liable for several hundred billions of grandfathered debt, and we consider all Landesbanks government-related entities and highly systemically important institutions to their owner states and Germany. Nonetheless, in our view Landesbanks are facing differing challenges which we reflect by slight rating differences.

S&P is not expected to be expanding its presence in North Rhine-Westphalia any time soon.

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