DBRS Confirms A high Floor Rating for Spk-Finanzgruppe Joint Liability Scheme Members, Stable Trend

Based on DBRS Ratings Limited (DBRS)’s floor ratings for the members of the joint liability scheme of Sparkassen-Finanzgruppe, which were confirmed on 27 March 2013, DBRS has today confirmed its Long-Term Debt and Deposit ratings of A (high) and Short-Term Debt & Deposits ratings of R-1 (middle) for members of the joint liability scheme of Sparkassen-Finanzgruppe. A full list of the 418 members to which ratings are applied is provided at the end of this release. The trend on all ratings is Stable.

The floor ratings reflect the depth and resources of the joint liability scheme, the additional support for the members of Sparkassen-Finanzgruppe from their public owners, as well as broader systemic support. The ratings also consider the underlying earnings potential and the solid franchise of the savings banks and the overall importance of the Group to the German banking sector. Offsetting these rating strengths are the elevated risk profile and weak overall earnings of several Landesbanks that are a significant part of the Group and the level of competition in the savings banks’ core business of German retail banking.

The floor ratings also consider the overall strong market positions and the solid franchises of the institutions comprising the Sparkassen-Finanzgruppe. Despite some marginal share decrease in recent years, together, the Group’s members maintain leading positions across many areas of German banking. DBRS sees the Group’s overall franchise strength as benefitting from the solid positioning of the savings banks, whereas the negative impact from weaker Landesbanks has diminished somewhat following meaningful de-risking and restructuring.

In DBRS’s view, the Joint Liability Scheme of Sparkassen-Finanzgruppe reduces the default risk for each individual member, because the Scheme makes financial resources available to each institution within the Group. As such, the strength and structure of the Scheme is a key factor considered in the floor ratings. The Joint Liability Scheme is designed to ensure the solvency and viability of each member, thereby protecting creditors and counterparties. Since the Scheme’s inception in 1973, no member has defaulted, an indication which DBRS views as the Scheme fulfilling its function. However, DBRS recognises that the Joint Liability Scheme has limitations, as it does not amount to a legal cross-guarantee. Moreover, while the combined resources of the Scheme have enabled it to cope with most stress scenarios, resources may be insufficient in a wider systemic crisis. These limitations are factored into the floor ratings.

Note:
All figures are in Euros (EUR) unless otherwise noted.
The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations. Other methodologies used include the DBRS Criteria – Intrinsic and Support Assessments. These can be found at: http://www.dbrs.com/about/methodologies

[Amended July 7, 2014 to reflect correct link to methodologies.]

The sources of information used for this rating includes company documents and DBRS’s rating for the Sparkassen-Finanzgruppe. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Peter Burbank
Rating Committee Chair: Alan G. Reid
Initial Rating Date: 18 January 2007
Most Recent Rating Update: 27 March 2013

For additional information on this rating, please refer to the linking document under Related Research.