DBRS Maintains pbb Intrinsic Assessment at BBB; Senior Ratings Remain Under Review Negative

On June 25, 2015, DBRS Ratings Limited (DBRS) maintained the intrinsic assessment (IA) of Deutsche Pfandbriefbank AG (pbb or the Bank) at BBB. The Bank’s Senior Unsecured Long-Term Debt & Deposit rating of A (low) and the Short-Term Debt and Deposit rating of R-1 (low) remain Under Review with Negative Implications (URN), which reflects the action taken on 20 May 2015 to review the systemic support assumptions for 38 European banking groups.

The Bank’s BBB IA is supported by the strength of pbb’s core franchise as demonstrated by the dynamic in new business generation and the track-record of pbb as Germany’s largest Pfandbrief issuer. In maintaining the BBB IA for pbb, DBRS confirms its view that the Bank has made continued progress in strengthening its business model as illustrated by pbb’s significantly reduced risk profile, improving regulatory capital position, and sustained profitability. Given that pbb has demonstrated a track-record of stability, DBRS has changed its Trend on the Bank’s Subordinated Debt (which is notched from the IA) to Stable from Negative.

Nonetheless, DBRS notes that pbb’s business model remains challenged by strong competition and the on-going low interest rate environment. Despite these challenges, pbb is on track to deliver privatisation of the Bank by year end 2015 as mandated under its EU approved restructuring program. Whereas DBRS views limited upward potential for the IA, downward pressure for the IA could result if pbb’s strategy, financial profile or performance changes materially post IPO, or in the event that the planned IPO is later substituted by a sale of the Bank.

At present, the German government maintains full ownership of pbb through HRE which in turn is owned by the German Financial Markets Stabilisation Fund (SoFFin). However, on June 10th, 2015, the Federal Republic of Germany, announced the decision to list pbb on the Frankfurt Stock Exchange and not to pursue the alternative sale of the Bank via tender offer at present. pbb’s owner plans to list a minimum 75.1% stake in the Bank, with government controlled HRE keeping a minimum of 20% for a two year period on behalf of the German Government.

The Long Term rating of A (low) is currently URN and incorporates DBRS’s current review of systemic support for European banks in general. In the case of pbb, the review specifically addresses the current SA-2 support assessment which has provided two notches of systemic uplift for the Long Term Rating due to both importance of the pbb to the German Pfandbrief market, as well as the track-record for government support. DBRS expects to conclude the review in September 2015 which could contribute to a two notch downgrade for the final rating.

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2014). Other applicable methodologies include the DBRS Criteria: Support Assessments for Banks and Banking Organisations (March 2015) and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2015).These can be found can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance

This rating is under review. Generally, the conditions that lead to the assignment of reviews are resolved within a 90 day period. DBRS reviews and ratings are under regular surveillance.

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

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

Lead Analyst: Peter Burbank
Rating Committee Chair: William Schwartz
Initial Rating Date: 19 July 2006
Most Recent Rating Update: 20 May 2015

DBRS Ratings Limited
1 Minster Court, 10th Floor
Mincing Lane
London
EC3R 7AA
United Kingdom
Registered in England and Wales: No. 7139960

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.