DBRS Comments on Landesbank Berlin’s Interim Q3 2009 Results – Senior at A (high), Trend Stable

DBRS has today commented that its ratings for Landesbank Berlin AG (LBB or the Bank), including the Bank’s Issuer & Senior Long-Term Debt ratings of A (high) are unchanged, following the interim results for the first nine months 2009 of LBB’s parent, Landesbank Berlin Holding AG. The trend on all ratings remains Stable.

LBB reported consolidated net profit of EUR 224 million for nine months through 30 September 2009, compared to a net loss of EUR 11 million in the year-ago period. For the third quarter, net profit was EUR 35 million, down 65% from the prior quarter, but up from a loss of
EUR 128 million in the year-ago quarter. The linked-quarter reduction in net profit primarily reflected rising allowances for loan losses and an unusually high tax charge due to a non-recurring change in deferred tax assets. Importantly, LBB’s income before loan loss allowances and taxes of EUR 165 million in Q3 2009 increased 7% on a linked-quarter basis, demonstrating continued solid underlying earnings generation.

The Bank’s client-driven business segments continued to deliver solid profitability. The Regional Corporate Banking segment recorded relatively stable nine-month earnings before loan loss allowances and taxes of EUR 60 million. In DBRS’s view, the result shows solid underlying business momentum, as segment deposits climbed 26% year-over-year and the number of business clients continues to grow. In the Private Clients retail business, income before loan loss allowances and taxes of EUR 91 million remained solid, but was down from the year-ago period.

Real Estate Finance, LBB’s commercial real estate (CRE) segment, grew its earnings before loan loss allowances and taxes in the first nine months 2009 to EUR 249 million, increasing 54% year-over-year. Higher net interest income, helped by improved margins, was the main driver. New CRE business volume recovered during the quarter as the German CRE market showed early signs of recovery.

The resilient income generated by the Bank’s client-driven segments adds stability to LBB’s overall earnings. The Capital Markets and Interest Rate Management segments, which primarily reflect the Bank’s own investments, showed positive results in the first nine months 2009. Capital Markets recorded pre-tax income of EUR 176 million after a steep loss in the year-ago period, benefiting from favourable market conditions. Interest Rate Management, which comprises LBB’s strategic rate positions, generated pre-tax profit of EUR 49 million for the nine-month period.

Allowances for loan losses were EUR 138 million for the first nine months 2009, increasing sharply from the year-ago period due to the deteriorating operating environment. DBRS expects loan loss allowances to remain elevated in coming quarters, as operating conditions continue to be challenging.

DBRS continues to view LBB’s liquidity as sufficient. Amounts due to customers rose 9% in the first nine months 2009, to EUR 35.5 billion at 30 September 2009. LBB’s capital position remains acceptable in DBRS’s view. RVG, the entity through which the German savings banks control their ownership stake in LBB, reported a strong Tier 1 ratio of 13.7% at 30 September 2009. Landesbank Berlin Holding AG, the immediate parent of LBB, had a less robust Tier 1 ratio of 7.8%.

LBB’s ratings are underpinned by its intrinsic profile, its ownership by the German savings banks, and by DBRS’s floor rating for all members of the joint liability scheme of Sparkassen-Finanzgruppe. The ratings reflect DBRS’s expectation that in a stress scenario, support would be available to LBB from its owners and from the joint liability scheme. In DBRS’s view, LBB has strategic importance for the savings banks, which is underpinned by the Bank’s growing joint business with its owners.

Notes:
All figures are in Euros unless otherwise indicated.

The applicable methodologies are Analytical Background and Methodology for European Bank Ratings, Second Edition, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.