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UPDATE 1-German banks face big but manageable Heta losses -Fitch
March 12, 2015 / 3:07 PM / 3 years ago

UPDATE 1-German banks face big but manageable Heta losses -Fitch

(Combines stories, adds Commerzbank CEO)

FRANKFURT, March 12 (Reuters) - Germany’s banks were sucked deeper into Austria’s bad bank debacle on Thursday after ratings agency Fitch warned of big losses for the sector, two days after it said commercial real estate lender Duesseldorfer Hypothekenbank was in urgent need of capital support.

German banks have large exposures to Austrian lender Hypo Alpe Adria’s “bad bank” Heta and face material, though manageable, losses from a suspension of its debt imposed by Austrian regulator FMA, Fitch said.

“The moratorium imposed on Heta by the Austrian authorities on 1 March 2015 will put most pressure on German covered bond issuers,” Fitch said in a statement on Thursday.

On Tuesday, Fitch downgraded DHB’s viability rating and warned of further cuts, citing a vulnerability “to adverse credit events”.

The small German bank declined to comment on the Fitch downgrade note, which highlighted credit events that “could overstretch its tight financial flexibility.” In its 2013 annual report, the bank said it had 348 million euros ($370 million) in Hypo Alpe Adria debt.

Regulators this month took control of Heta and imposed a debt moratorium until May 2016 after an outside audit found writedown needs that blew a hole of up to 7.6 billion euros in its balance sheet. This leaves holders of Heta debt in limbo and facing the prospect of losses.

Heta could still be declared insolvent despite plans to wind it down, FMA said this week, a move that could hit German banks harder than many of their Austrian rivals.

Three of Austria’s top banks - Erste, Bank Austria and Raiffeisen Bank International - said they had either no or negligible exposure to Heta debt.

In fact, German banks have more exposure to Heta than Austrian banks, Fitch said.

Assuming that German banks held two-fifths of affected debt, Fitch calculated that a 50 percent haircut would cost up to 10 percent of the sector’s 2015 net profit.

Those German banks hit include BayernLB with some 2.35 billion euros in unsecured loans and Deutsche Pfandbriefbank with 395 million euros in exposure, according to Fitch.

Heta debt was also “leaving its mark” on DHB, debt analysts at Commerzbank said, after DHB already received emergency support from Germany’s deposit protection fund in the past.

Fitch said it did not factor any capital support for DHB into its decision to downgrade the bank but that support from the deposit protection fund would likely be available.

A spokesman for Fitch declined to comment, as did Germany’s banking association BDB which operates the insurance scheme.

A plan for DHB owner Lone Star to sell the bank to a group of financial investors - Attestor Capital LLP and Patrick Bettscheider - as agreed in 2014 still requires regulatory approval and is likely to be delayed, Fitch said.

Speaking separately in London, Commerzbank Chief Executive Martin Blessing said moves by the Austrian government to loosen state guarantees on Heta debt had implications for Germany’s own state-controlled bank sector, which includes the large Landesbanken.

“The paper by Hypo Alpe Adria was seen as risk-free because it carried a guarantee of an Austrian state, and with this now being circumvented, how can you see the paper of German Landesbanks with state guarantee as risk free?,” Blessing said. ($1 = 0.9416 euros) (Reporting by Thomas Atkins and Jonathan Gould in Frankfurt and by Angelika Gruber and Shadia Nasralla in Vienna, and by Karin Strohecker in London; Editing by Vincent Baby)

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